By Emeka Anaeto
THE volatility in the capital market in recent times has created the impression of excessive risk for the average investor. From your vantage position what do you advise a prospective investor who has options outside equities?
Our priority is to support investors in making informed decisions, which is why we spend a lot of time on investor education and roadshows. No matter the financial objective, we encourage investors to make informed decisions and consider all available options.
The current state of the market creates both opportunities and challenges for investors. We believe that taking a portfolio approach to investing provides the best risk adjusted alternative to participating in the capital market. We provide a repertoire of products that will help investors to create portfolios with uncorrelated products. We became a multi-asset class exchange a few years ago and do offer exposure in equities, fixed income, ETFs (Golds, Bonds, Equities), real estate, REITs, etc.
To further elevate and showcase high-performing Nigerian companies, we launched a Premium Board for large companies with the highest standards of corporate governance in 2015. Despite current bearish trends, the NSE’s Premium Board index has grown 6.9% year-to-date. This reflects the appeal of this Board to investors and affirms that strong, transparent and sustainable listed companies are key to developing a resilient, less volatile market.
Do people still make money significantly in stock trading?
Profitability of an investor’s portfolio is something that is outside of the NSE’s purview. We do know, that all capital markets move in cycles and definitely, the Nigerian capital market is in a down cycle. Our All-Share Index grew by 75% between 2006 and 2007 but declined by 46% between 2007 and 2008.
The index however improved by 47% between 2012 and 2013. In the last ten years the market has contracted by 13%. We have created opportunities for investors to make money in the stock market through down and up cycles (securities lending, short selling) various sectorial indices, market segmentation – large cap, medium cap and small cap etc.
In view of the apparent discouragement or disincentives to investment in equities what is the NSE’s position on reducing cost of transactions in terms of fees/ charges/ commission?
In 2014, we reported that we had conducted a Transaction Cost Analysis (TCA) to understand how current implicit trading and explicit listing, trading, clearing and settlement costs on the Nigerian market compare to other global and peer markets.
You will recall that the NSE revised its listing and trading fees for securities listed and traded on its Fixed Income Market. Under the revised fee structure, the NSE no longer charge trading fees on fixed income traded on its platform. The initial flat listing application fees of 0.15% for all bond types has been replaced with variable listing application fees. With this, Corporate Bonds exclusively listed on the NSE, with existing equity listing, attract 0.01% listing application fee. Dual listed Corporate Bonds with existing equity listing and other Corporate Bonds will attract 0.0375% listing application fees. Similarly, the listing application fees for State and Supranational Bonds has been reduced to 0.05%.
The Exchange also replaced the fixed Brokerage Commission of 0.0005% with a negotiable rate capped at 1%. This will enable investors negotiate trading commission with brokerage firms, thus driving competition and best execution.
We are still working in conjunction with other capital market stakeholders on the implementation of a market wide transaction cost review.
What are the measures in place or planned for getting foreign investors return to positions they were at NSE before their exits in the last one year?
The capital market is a global marketplace, there is no capital market that can grow without participation by foreign investors. Bearing in mind our objective of making the Nigerian capital market the hub of the African capital market, we need to encourage foreign investors.
Like we all know, the market is reflecting the economy. It is a barometer for the economy so it will be surprising if the market is going up when the economy is having shocks. To bring the Nigerian economy back on track, a dynamic approach, with a strong sense of urgency, leveraging stakeholders in Public / Private domain is required.
We believe that the ongoing structural reforms in key sectors of the economy e.g. infrastructure, energy, agriculture, etc, will bring the economy out of recession and to a path of steady growth and prosperity.
On the products side, the Exchange is intensifying efforts to develop the necessary infrastructure and frameworks to launch derivative products in the market. We have been working very hard to set up the first Central Counterparty Clearing House (CCP) in West Africa that meets G20 standards.
More so, we entered a strategic partnership with leading global index solutions provider, MSCI. Our collaborative effort with MSCI will create a co-branded family of Nigerian based indexes that can be marketed around the world. This also reflects our commitment to continue to innovate and develop products that will increase the sophistication of African capital markets and establish Nigeria as a market for sustainable growth.
In terms of regulation, we are creating a world-class surveillance system in partnership with NASDAQ. We have acquired NASDAQ’s SMARTS Market Surveillance platform to enhance the Exchange’s surveillance program. The platform will provide the NSE with the surveillance tools needed to grow confidence in the market, as well as monitor for market manipulation, such as spoofing and layering.
At the Exchange, a lot of our energy has been spent building the foundational aspect of the market in terms of transparency, orderliness, fairness, disclosure, and more importantly how we enforce our rules and regulations, strengthening our intermediaries (Minimum Operating Standards). In the short term, you see huge volatility but that should not distract you from those fundamental elements about good companies, making good money, running under a well governed Exchange structure and a well regulated market structure. These factors will combine to shore up investors’ confidence in these challenging times.
When do we expect their full return?
Foreign investors like all investors base their decisions on information. We expect them to return to the market once there is liquidity in the FX market such that they are able realize their returns when they try to repatriate proceeds of securities sales.
Exchange Traded Funds (ETFs) in Nigeria recorded 1900% growth in 5 years, with about 31.8% year-to-date (2016) return to investors. With this impressive profile why do we have just 8 ETFs in NSE as against 74 in Johannesburg Stock Exchange?
Up until 5 years ago, the Nigerian capital market did not have Exchange Traded Funds (ETFs). ETFs were introduced on the NSE in December 2011 with cross listing of NewGold ETF with AUM of N287.5m to provide investors with new opportunities to diversify their portfolios and access the market. Like you noted, the total ETFs in our market has increased to 8 with about 506 ETF investors in the market.
The existence of ETFs in our market is beneficial to retail and institutional investors, as ETFs offer a direct and inexpensive way to attain diversified exposure to an index, commodity, sector or region.
Aside diversification and tradability, ETFs also offer additional benefits of low expense ratio as compared to mutual funds and increased liquidity, and can be used to execute different investment strategies.
Since the crash of crude oil prices in 2014, as you are aware, the equities market has been unattractive for investors, inflation has eroded disposal income significantly affecting savings etc. Despite this, ETFs remain a veritable investment option for investors to diversify their portfolios. The Gold ETF for instance has returned 114% between 2014 and now.
The growth of ETFs in Nigeria has only just begun, with the support of market intermediaries, stakeholders and our regulator, we will continue to grow our ETFs market in terms of AUM, number of listings and trading turnover.
What are plans to boost this sector given the difficulties in the equities market?
As part of the Exchange’s efforts to develop the ETF market, we instituted an annual ETF Workshop to create awareness of the product, address its challenges and promote its opportunities in Nigeria and Africa. The workshop is also designed to provide our intermediaries with necessary exposure and skills as it relates to ETFs product sales.
In addition, we have put a ton of information about ETFs on our website, in our market data products, and at the disposal of our brokerage community, who interact directly with investors.
What’s your management style?
I believe in team work. With this philosophy I demand high standards from my team members whilst paying attention to details. More importantly, I leverage every opportunity and touch points to provide mentorship, sharing from my deep experience acquired in the capital market industry.