Managing Director and Chief Executive Officer of Solid-Rock Securities and Investment Plc, Fellow of the Chartered Institute of Stockbrokers (CIS), and Chairman, Association of Stockbroking Houses of Nigeria, ASHON, Mr. Patrick Ezeagu, in this interview discourses on issues affecting stock market, exchange rates, among others. Excerpts:
UP till now, bear run has consistently overshadowed bull run on the Nigerian Stock Exchange. At what point can we expect market recovery?
It is a truism that the bear has run consistently to overshadow the bull in recent months. The CEO of the NSE, Mr. Oscar Onyema on his market outlook for 2017, posited that investors should expect a positive performance this year. This is based on market analysis and the World Bank projection that the Nigerian economy will recover from its recession in 2017 with a modest growth of 0.6%.
This positive forecast is also based on the various initiatives being put in place by the Nigerian Stock Exchange. In addition, the capital market does not exist in isolation of the economy.
Therefore, as the initiatives being put in place by government start to impact positively on the economy, the bull will gradually return.
No condition is permanent and in all my years in this profession, no market that went down ever remained down, it always bounces back, so shall it be for the Nigerian capital market. Patience is all we need and investors shall begin to smile back to their banks on the back of dividends and capital appreciation. I see a positive future for the Nigerian Capital Market. We should not also lose the fact that our market fundamentals are strong as most stocks are currently trading below their intrinsic value. Investors that have strong appetite for value stocks are making kills on daily basis.
What are the effects of high exchange and inflation rates on investment in the stock market?
High exchange rate and inflation rates are the twin evil that afflict the Nigerian capital market and indeed every economic endeavours. For a start, these two variables introduce a high level of uncertainty to the price structures of the market.
Secondly, they stifle savings which is the fulcrum of investment. Any phenomenon that negatively impacts on savings reduces the quantum of available investible fund for capital market investment.
Thirdly, it hits the foreign portfolio investors as they face exchange rate risk with their investment, especially, with respect to repatriation of dividend or capital or both. As a result, one of the main reasons why our capital market has been witnessing low patronage is attributable to the impact of both inflation and the uncomfortable high exchange rate regime.
However, I am glad that the CBN is coming to terms with the need to free the strangulating hold it has on the rate to enable the Naira find its market determined exchange rate with the other currencies.
In this way, both investors in the Capital Market and other users of FX can be relatively assured of a band within which they can benchmark their exchange rate. The flip side is that inflation shall also be contained in the process as the economy and particularly the Capital Market inches towards a full free market determined price structures.
How can the governments at all tiers utilize the capital market to finance the economy?
Government at all levels utilizes the capital market to finance the economy because it provides an alternative source of funding that can complement Internally Generated Revenue (IGR).
Capital Market fund is relatively cheaper than any other means of funding and has a longer maturity period. There are various investments/windows available to both federal and states governments in accessing funding from the market, these include asset sale, bond issuances such as Sovereign, Sub-national, green bonds, etc.
These debt instruments are available and governments at various tiers are at liberty to fund infrastructural development using either or a combination of these types of instruments. Through this platform, the capital market contributes meaningfully to the development of the economy.
What efforts are the stockbrokers making to convince the Federal Government to create enabling environment for listing of the Oil Companies in the upstream sector and frontline communication companies in order to deepen the capital market?
ASHON, in collaboration with SEC and NSE, is constantly in dialogue with the federal government agencies, MDAs and the National Assembly in a continuous engagement to fashion out ways and means of ensuring that these companies list on the Exchange by moral suasion, incentives and legislation or a combination of them.
How can the Nigeria’s capital market attract foreign investors and what measures should be put in place to encourage the indigenous ones?
The Nigerian capital market can attract foreign investors through the following means: ensuring that there are proper incentives for foreign investors such as good and operational corporate governance practices, favourable policy on capital importation and repatriation, good, effective and favourable social economic environment in the country, appropriate and fair tax system in place, favourable and stable monetary and fiscal policies, etc.
I must be quick to say that most of these factors apply to indigenous investors either at the level of institutions or retail. In the final analysis, investment is all about risk and return trade off. Our market should not only attract foreign investors, it must be highly sought after by indigenous ones.