President, Chartered Institute of Stockbrokers (CIS), Mr. Albert Okumagba, has called for a mix of amenable policies and incentives to woo investors to the Nigerian capital market and encourage listing by Nigerian and foreign companies.
Okumagba, who spoke against the background of recent initiatives by the CIS to boost market confidence, said all stakeholders, including the government and regulators, have roles to play in the development of the capital market and they must all work together to drive the process of growth.
According to him, there is overriding need to continue to create an enabling environment to make the investors, both local and foreign, regain confidence in the market.
“We need to encourage rules that will deepen the market especially in areas of capturing major sectors of the economy that are not currently well-represented in the capital market, for instance telecommunication, power, entertainment and oil and gas sectors. We need to also deploy the existing huge savings in pension funds to develop the economy and the capital market through investment in infrastructure,” Okumagba said.
He noted that there is still pervasive crisis of confidence in the market especially, among the local investors pointing out that the negative impact of the margin loan has not been forgotten.
“This is why you have more speculators than long-term investors, accounting for high volatility and instability. Currently, the macro economy, with dwindling oil prices, devaluation of the Naira, exchange rate instability is not helping matters. Lastly, the socio-political situation with insurgency in the North East and the upcoming 2015 elections in Nigeria constitute additional uncertainties; thereby accentuating the risk of investing in our market,” Okumagba said.
According to him, the devaluation of the Naira could lead to both negative and positive development for the Nigerian economy depending on how government handles the fallouts of the depreciation.
He explained that devaluation on one hand, could encourage local industries which can now earn more Naira on their exports with positive impact on the country’s trade balances while on the other hand, it will bring about closure of many companies that depend mainly on imported raw materials as the cost of their inputs will increase significantly upon conversion to their Naira equivalent.
“For Nigeria which is largely import dependent, the overall impact will likely be negative in the short run. This could result in negative macroeconomic indices such as higher rate of unemployment, lower GDP and lower industry capacity utilisation. These could immediately lead to a reduction in the profits of some listed companies thereby reducing the potential for capital appreciation and dividend return, hence hurting the capital market,” Okumagba said.
He however noted that in the long run, devaluation could be a positive development for the economy as manufacturers opts for local substitutes to imported raw materials and the country’s exports become competitive. Corporate earnings will also become more stable as they are no longer significantly exposed to foreign exchange volatility. This will benefit the capital market.
He emphasized the roles of government in the development of the capital market pointing out that the importance of the government in the economy of a developing nation like Nigeria cannot be overemphasised in the area of directing the economy, formulating, implementing and enforcing policies.
According to him, as an institute, the CIS has reinforced and reinvigorated its various advocacy platforms available to engage government in various areas for the good of the country and the capital market.
“We believe there is need for collaboration and exchange of ideas among professionals on subjects of common interest, in addition, to making and supporting representation to government and other appropriate agencies of government on matters affecting the parties and the Nigerian economy. We are collaborating to become a stronger force to further the mutual interests of the parties, and the development of the Nigerian socio-economic life,” Okumagba said.
He urged investors to seek advice from professional fund managers to avoid high risks that currently characterise the market.
According to him, in a situation of uncertainty such as the market is now, the level of risk is higher; hence investors should be cautious. In every crisis, there are both chaos and opportunities. To tap these opportunities, investors with little or no experience should always engage the services of experts to manage their wealth. This should provide them with the benefit of professional advice.
“I will specifically advise small investors to invest in well-managed funds at this time. The fund managers have the experience to manage portfolios of well-diversified assets for reasonable returns at relatively lower levels of risk. Finally, this time also presents investors opportunities to generate abnormal returns because Nigerian equities are significantly undervalued,” Okumagba advised.
