Nigeria's Stock Market Recovers

No Comments » November 16th, 2008 posted by // Categories: Nigeriawatch




Stock Market Recovers

•NSE cap gains N904bn •SEC begins registration of market makers
By Goddy Egene, 11.17.2008


Some relief came the way of investors last week after eight months of losses, pains and anxiety following the persistent fall in share prices in the Nigerian stock market.

The bear run had depressed the stock market by 41 per cent (or N5.2 trillion) from a peak of N12.6 trillion between March 5 and November 5, 2008.

However, stability crept into the market on November 6. And at the close of trading last Friday, the market had regained N904 billion (or 17 per cent) of the lost value.

The market capitalisation, which hit a record low of N7.405 trillion on November 5, appreciated to close at N8.309 trillion last Friday, following the recovery witnessed by the prices of many equities.

Some market operators attribute the development to investors’ response to the low prices of the equities.

Managing Director of Mission Securities Limited, Mr. Ayo Oguntayo, said the rebound was expected considering the low prices of equities after the removal of the “circuit breaker” which had limited price depreciation to no more than 5 per cent in a day.

“Immediately after the peg on downward pricing of equities was removed, some stocks bottomed out. And given the impressive results being posted by many of the companies, investors took advantage of the low prices. The impact of that renewed interest is what we saw in the market in the last one week,” Oguntayo said.

Managing Director of Crane Securities Limited, Mr. Mike Ezeh, said the market would have actually picked up earlier than now but for the liquidity squeeze experienced by investors.

“When the ‘circuit breaker’ was removed, prices hit new lows and investors who have some liquidity are taking early position. The fundamentals of the companies remain strong and the future of the market is bright. More investors would come as their liquidity positions improve because the prices of the stocks are very low now,” he said.

For instance, First Bank of Nigeria Plc, which last Thursday emerged the quoted company of the year, had hit a price of N19.10 per share, down from a peak of N54.86 before the recovery began.

The Minister of State for Finance, Mr. Remi Babalola, at the weekend said investors would have cause to smile again as the market regained its stability.

Speaking at a workshop organised by the Capital Market Correspondents Association of Nigeria (CAMCAN) in Ijebu Ode, Ogun State, Babalola said stakeholders were still meeting to proffer lasting solutions to the stock market crisis.

He said: “I want to reassure investors that our capital market is healthy and sound. The continued fall in stock prices will not be long. Investors need not panic, rather it is time to invest more. The fundamentals of the economy are strong. I am glad that the awareness of the NSE as an investment avenue has increased tremendously. The downturn in the market is a blessing in disguise and also a lesson on the reality of the operations of the market.

“It is important to view the capital market as a form of long term investment rather than a speculative jackpot. My investment advice for Nigerians and other investors is to invest more on a long term basis and the best time to do so is now when we have the lowest prices we have seen in a long time. The future is bright and promising.”

The breweries and banking sub-sectors dominated the price recoveries last week with Guinness Nigeria Plc gaining N22.50 to close at N104.03. This was followed by Nigerian Breweries Plc with a gain of N9.13 to close at N45 per share.

First Bank appreciated by N6.11 to close at N28.32, while Zenith Bank Plc and  Dangote Sugar Refinery Plc garnered N5.85  and  N4.05  to be at N29.50 and N18.85 respectively.

A total of 60 stocks recorded price gains last week, while 40 stocks shed value. Chevron Oil Nigeria Plc led the price losers with N44.41 to close at N267 per share. Oando Plc trailed with a loss of N27.09 to close at N119.02 per share.

Nigerian Enamelware Company Plc shed N6.18, just as Benue Cement Company Plc, Nigeria Company Plc and BOC Gases Plc depreciated by N5.56, N3.22 and N2.90 in that order.

Meanwhile, the  Securities and Exchange Commission (SEC) has begun the registration of market makers as part of efforts to stabilise the nation’s stock market.

Market makers are wholesale operators who ensure that there is liquidity in the stock market by either buying shares when there is a glut or selling shares when there is scarcity.

Guidelines for the registration of market makers were released by SEC last September while about 15 had since applied for licence.
Head of Media, SEC, Mr. Lanre Oloyi, said that three of the 15 applications had been considered.

Oloyi, who stood in for the Director-General of the Commission, Mr. Musa Al-Faki, at the CAMCAN workshop, said one of the firms had scaled through, while consideration for additional two had reached an advance stage.

He, however, did not name the firms. He said: “At the appropriate time SEC will announce the names of the firms that have been approved and given licence to operate. The three firms that can be said to have scale through the screening process by the Commission’s are yet to commence operations until final clearance are given to them. The Commission is still going through other applications for consideration.”

SEC’s  rules defines market maker as “any  specialist permitted to act as a dealer, any dealer acting in the position of a block positioner, any dealer, who with respect to a security, holds himself out as being ready to buy and sell such securities for his own account on a regular and continuous basis”.

The Market Maker shall be a company duly registered with Corporate Affairs Commission and shall have a minimum paid-up capital of N2 billion. Market makers are required to all times maintain sufficient liquid assets to cover its current indebtedness.

Obligations of the Market Maker include: stabilisation of the market by ensuring continuous liquidity by synchronising buy and sell transactions of a security; operate within the established transaction spread (that is bid/offer spread) which shall be a maximum limit of three per cent and subject to review from time to time.

Also, the Market Maker will have  the capacity for continuous two-way quotes in the relevant stocks through the trading session in a minimum quote size of 100,000 units of shares and must have the capacity to deliver and settle transactions within the prescribed settlement cycle of T+3. The Market Maker must equally have the capacity to lend and borrow the designated securities at any time, with a view to ensuring stability in the market among others.


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