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- Stock market still defies govt intervention (September 29, 2008]
Averagely, market capitalisation had been on the rise from the inauguration of President Umaru Musa Yar'Adua in May 2007, peaking in March this year at N12.6 trillion. From then, it has been on a downward slide. As at Tuesday, it had reached a low N8.8 trillion, representing a 30 per cent loss or N3.8 trillion. The All Share Index declined from 66,116.56 to 43,119.47, representing 31.4 per cent loss. UNQUOTE http://www.tribune.com.ng/29092008/news/news4.html
---- GUARDIAN Monday, September 22, 2008 Rigging the Nigerian stock market THAT we have become a Nation of riggers is no longer news. Coming through a sequence of award-winning episodes of election rigging from the 2003 general elections, through the 2007 elections to the series of tribunal-induced election re-runs across the country, rigging is fast becoming a way of life with us, almost to be taken for granted. But to extend this bad habit to the capital market is pushing things beyond limits! The Stock Market is supposed to be a bastion of free, unfettered trade, ruled by the normal forces of supply and demand. The forces of supply and demand are, in turn, governed by performance indices of the quoted companies, public perception as well as macro-economic fundamentals. Such other indices as greed, speculation and even hunch can have telling effects on the movements of stock prices. In all of these, however, it remains a free market, robust and flexible enough to spontaneously respond to the forces that propel her as against the forces of regulatory fiat. The Nigerian Stock Market has been exhibiting very irregular behaviour since the bank consolidation exercise of 2005, followed by the Insurance consolidation exercise of 2007. In the two years between 2006 and early 2008 most bank, insurance and oil marketing stocks have appreciated by over five hundred per cent without a correspondingly dramatic improvement in the underlying fundamentals. Of course, other sectoral stocks caught on with the craze and soon, the Nigerian Stock Market became famous around the world for delivering mouth-watering returns. Let us examine a few of these fundamentals. For many investors, particularly those who invest on a long term basis, the dividend they receive, as a ratio of the stock price (dividend yield) is a key indicator of how attractive the stock is. A dividend yield of between six and ten percent would be considered attractive, especially where some moderate capital appreciation is factored in. And this is understandable in a market where cash deposits attract over ten percent, sometimes as high as sixteen percent interest and inflation rate is double digit. And such dividend yields were not uncommon before the new craze. Mobil and Total were paying upwards of N6 dividend when their prices were less than N70. And I remember vividly when we were buying Nigerian Breweries Stock for N16 and receiving N1.20 dividend. Similarly Berger Paints was paying 35kobo dividend when the stock price was between N3 and N4. These are just a few examples to illustrate the point. At the boom prizes of stocks on the Nigerian Exchange before the recent slide, dividend yield plummeted to less than 2%. Banks whose prices hovered around N30 were paying 50kobo dividend. The few who paid as much as N1.0 dividend had their prices hovering between N50 and N60. Petroleum Stock were still paying N4 to N6 dividend when their prices had ballooned to over N300 while insurance stocks, whose prices were around N4 were paying 5kobo dividend! These dismal dividend yields only told one story: that most of the stocks were grossly overpriced! The ratio of the stock price to the earnings (profit after tax) per share (P. E. Ratio) is usually a direct measure of the Company's performance and the attractiveness of the stock. A single digit P. E. Ratio would be an investor's delight, which would mean that the stock price is less than ten times the annual profit per share. Again, at their peak prices, most of these stocks had P. E. ratios ranging from 30 to 60! In a layman's language, if you bought a Company whose P. E. Ratio is 30, you'd have to wait for thirty years before you can recover your investment! Today, many of the banks have shareholders' funds in excess of N200billion and usually some ten to twenty billion paid up shares. And yet their total deposit liability remains in the region of N400billion to N600billion, meaning that the ratio of deposits to Shareholders funds is only 2 to 3! Elsewhere in the world, and in the era before 2005, that ratio would be about 20. It is even worse with the insurance Companies. In some of them the Shareholders funds is higher than the premium liability! What does all this layman's analysis tell me? That the phenomenal growth of our Stock Market between 2006 and 2008 was manipulated and certainly not sustainable. Three main factors contributed to this unsustainable growth. The craze and pressure to raise more money from the market led the players to perfect the act of driving up these prices before hitting the market. After a successful fund raising, the price still had to be driven up to justify the offer price, even though all other fundamentals were collapsing. And the catalysts to this manipulation were the twin effects of EFCC and 9/11. Huge proceeds of corruption, usually running into billions of dollars which hitherto would have been stashed away in secure foreign banks could not be laundered outside the Country but had to find vent within this economy. Two ready avenues were the stock market and the Real Estate Market. Thus manipulation became easy because large, cheap (actually free!) funds were available. With the boom set in motion, additional injection of funds by local and international fund managers who cashed in to make short term, huge profits further heightened the Euphoria. Some of these funds were actually borrowed for the purpose. From the fore-going, it was crystal clear to any discerning analyst that the bubble would burst much sooner than later. Short term investors are cashing out while fund managers are calling back their funds. It is always the case that huge gains made by some investors in the stock market would be huge losses incurred by others. It is therefore, natural that, in true market reaction to demand, supply and underlying fundamentals, that the Nigerian Stock Market has been losing ground since the beginning of the year. The adjustment we were witnessing were timely, proper and actually expected and was ultimately going to attain an equilibrium that would equate the actual market prices of these stock. But in true Nigerian Fashion, the authorities have reacted by setting a rigging machinery in motion. The instruction is as clear as it is laughable... Stock prices must only go up and must not be allowed to fall! And if we think that we are restoring investor confidence by the on-going intervention, we are grossly mistaken. Once it becomes widely believed that our stock market only responds to manipulations instead of market forces and well established evaluation indices, then it will become Jankara market. International investors can not have any confidence in such a market. The Nigeria Stock Market should be left alone to play by its own rules. It is sad that, as in most things Nigerian, we make standard rules to govern our activities but are usually the very first to break our own rules! * Avuru is a company executive in Lagos.
Nigeria: Stock Market - Intervention Yields Immediate Results This Day (Lagos)
By Bisi Ojediran And Ayodele Aminu Some relief came into Nigeria's stock market yesterday after the intervention by government and stakeholders on Tuesday to stop its continuous fall. But experts and investors have been commenting on the overall health of the market and the efficacy of the recovery measures announced two days ago. At the end of trading yesterday, the All Share Index rose by 3.1 per cent from 43.19 trillion to 44.57 trillion. Similarly, market capitalisation rose from N8.808 trillion to N9.08 trillion, an increase of about 3.1 per cent. The recovery plan announced yesterday included 20 per cent buy-back of shares by companies; reduction of market operators' fees; introduction of a capital market stabilisation fund; review of the country's liquidity situation; and a review of trading rules. The new trading rules reviewed the band for daily price movements - a reduction of the five per cent maximum downward limit to one per cent, and the retention of the five per cent upward movement. Averagely, market capitalisation had been on the rise from the inauguration of President Umaru Musa Yar'Adua in May 2007, peaking in March this year at N12.6 trillion. From then, it has been on a downward slide. As at Tuesday, it had reached a low N8.8 trillion, representing a 30 per cent loss or N3.8 trillion. The All Share Index declined from 66,116.56 to 43,119.47, representing 31.4 per cent loss. Yesterday, Finance Minister Dr. Shamsuddeen Usman reaffirmed that the intervention was a "quick fix" to stem the slide in market prices. He promised that the 16-member Presidential Advisory Team would meet regularly to develop medium and long-term measure to stabilise the market. Addressing concerns about the efficiency of the share buy-back measure, the Minister said its application would be "in line with the law and best practice". He said it would also be subject to approvals of the Securities and Exchange Commission, which will specify conditions to be met. The conditions include the requirement for such companies to be quoted and also to be liquid. They also have to disclose to the public that they are buying their own shares. The Attorney-General of the Federation, Chief Mike Aondoakaa told THISDAY yesterday that amendments of necessary laws would be made through National Assembly, and that it would be done as soon as the President returned from his trip to Saudi Arabia. However, some stakeholders yesterday expressed reservations over the measures, describing them as medicine for temporary relief. The chairman of a bank noted that the people that lead the market are always the ones that manipulate it. He hoped that shares bought back from the market would be liquidated by the quoted companies. "It defies all logic if they buy and hold the shares," he said. Commenting on the 1 per cent limit to price fall, he warned that it would make the sale of shares difficult and affect the total volume of transactions. Jibola Odedina, of Marina Securities Limited, supports the 1 per cent limit, describing it as a measure to forestall sudden price falls that could shock the market. But a bank chairman advised that measures to stem the tide can only yield desired results if they are sustained. Beyond these measures, the chairman wants the advisory body to look at the fundamentals of the problem. Noting that the basic problem is loss of confidence in the market and the economy in general, he called for full investigation into the loss. He said confidence in the economy and Nigeria soared during the inauguration of the President in May 2007, particularly on account of The President's inspiring inaugural address. Whatever had gone wrong, the bank executive said, should be rectified. Also speaking on how to regenerate confidence in the system, a seasoned economist said investment in the market was about hope in the future - hope that the investment was not only safe, but would grow in added value. "Investors need their confidence buoyed," he said, expressing the need for the Economic Management Team to communicate the state of the economy more to the people. On the proposed measure to review liquidity in the system, he said it may not be the issue now because already there is N400 billion excess liquidity in the system. But Odedina, who believes the package of measures is capable of restoring confidence in the market, suggests a little investment in the stabilisation fund will help in delivering the desired results. He also believes that the market makers to reduce wild fluctuations in market prices could be found from among existing stockbrokers.
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