By Babajide Komolafe
Dele Sotubo is the Chief Executive Officer of Stanbic IBTC Stockbrokers, Nigeria’s largest stockbroking firm in value and volume of transactions handled at the Nigerian Stock Exchange. In this interview Sotubo talks about the capital market and efforts to deepen it, the bond market, corporate governance issues, listing of oil and gas companies, among other issues. Excerpts:
There have been agitations for multinational oil and gas companies and telecoms giants to list on the Nigerian Stock Exchange to further boost the capital market’s contribution to the GDP. The jury is out on whether the capital market is a true reflection of the economy. What efforts are market operators like yourself making to encourage telecoms and multinational oil and gas companies to list on the Nigerian Stock Exchange?
The listing of these companies will help deepen the capital market. The regulators and operators are currently in discussions with the government on the best way to ensure that these companies list on The Exchange to help deepen the market.
Beyond that, we will continue to play an active role in listing such companies on the NSE. The listing of SEPLAT, an oil and gas company, on the NSE is a clear example of our contribution as financial services group to deepening the NSE.
What measures would you recommend to boost confidence of local investors and increase their participation in the stock market?
Restoring confidence in the market after the global melt down will be a gradual process as activities in the equities market is cyclical. Foreign investment withdrawal from the market in 2014 was largely as a result of Macros fall in oil prices and currency devaluation and exchange rate instability. Improved macro-economic situation will galvanize investors’ interest and boost retail investors’ confidence in the market.
The increase in the number of more sophisticated domestic investors such as pension and asset management and insurance companies should drive participation in the medium to longer-term. We believe that the increase in retail investment products such as Exchange Traded Funds (ETFs) will also encourage retail investors participation.
The appointment of Stanbic IBTC Stockbrokers two years ago to manage bonds for the federal government was expected by stakeholders to lead to a more robust market for bonds, opening up the market to retail investors. Will you say stakeholders’ expectations have been met?
Yes, Stanbic IBTC Stockbrokers was appointed by the Debt Management Office as the Government Stockbroker to FGN Bonds and part of the duties assigned is to create awareness on Retail Bond trading. Retail investors have started taking advantage of investing in bonds on the secondary market through retail bond trading as this helps to diversify their potfolio and manage their risk.
Stanbic IBTC Stockbrokers Limited has been able to consistently provide liquidity in the retail bond market. We now have retail investors participating in the bond market with a minimum of N100,000 as against wholesale bond market which requires N100 million minimum. We will continue to organize workshops and educate the public on the advantages of investing in bonds.
The current reforms in the economy, particularly in power and agriculture, have helped to position Nigeria as an investment haven. Are investors showing strong appetite for opportunities in the aforementioned sectors?
With the recent GDP rebasing and the reforms around the power sector, we see strong appetite from investors, perhaps not on the stock market now. However, investors have shown increased interest in partnering with Nigerians on power projects and to a large extent agricultural transformation.
The challenging macro-economic environment is likely to slow down the pace of investment on that front as many players wait on the sidelines until the elections are well out of the way and the uncertainty around the fiscal operations of the government has been eased.
In the last decade, technology has redefined the operations of the capital market. How do you see technology shaping the stockbrokerage business in the next decade?
The interesting thing about technology is that it fosters efficiency and productivity. It also drives transparency in the capital market. This can also be a mode through which retail investors can be attracted into the market.
Many Nigerians using mobile devices can now have access to put their trades through the market. With the introduction of Direct Market Access (DMA) and other similar initiatives, we expect that this will help to improve participation of investors in the capital market.
There seems to be a general disposition by Pension Funds Administrators (PFAs) to federal government securities, about 40 percent of PFA’s investments are skewed in that direction, followed by money market instruments. Investment in the capital market is considerably less. Which factors, in your opinion, other than regulation, determine these investment decisions?
Apart from the perceived low risk appetite of PFAs, which is understandable when we consider the adverse effects of the 2008 stock market crash on portfolio investors, we also believe that the limited number of high quality liquid stocks reduces their options.
Lack of depth in the Nigerian market makes the available options limited. The preference for capital preservation and guaranteed money market yields also contribute to the low risk appetite for equities. Part of the regulation also requires pension funds to report returns on an annual basis, which discourages them from taking the long term view on investments.
We expect the listing of more quality companies as reforms in sectors such as the power, oil and gas, telecommunication and agriculture increase demand for capital.
What can investors expect from the capital market in 2015?
We expect continuous volatility in the equities market as macro concerns linked to the falling oil price and currency drive investor sentiment. The passive position of domestic investor has not helped the situation.
Despite the bearish outlook, we expect trading opportunities to continue to emerge for short-term investors while longer-term investors take advantage of the falling prices to increase exposure in quality stocks. We also expect the political risk as we approach the general elections to weigh on investor sentiments in the short-term. However, we expect to continue to see investors interest in quality names.