Last week, the Nigerian Stock Exchange, NSE, released the figure for domestic and foreign investors’ participation in the equities market which showed that investment was skewed in favour of the domestic retail investors. The level of domestic retail investors participation during the one month period rose by 46.92 per cent.
In this interview, Mr. Patrick Ezeagu, the Chairman, Association of Stockbroking Houses of Nigeria, ASHON, and Managing Director/CEO, Solid Rock Securities and Investment, spoke on the development.
Excerpts:

By Nkiruka Nnorom

DATA released on domestic and foreign portfolio participation on the Nigerian Stock Exchange for the month of June, showed significant improvement in the composition of domestic retail investors. What could be the reason for the renewed interest among them?
There are a number of factors that have happened in the market that have actually tended to show that the economy is on the path of recovery. Number one is that the government has come up with the Economic Recovery and Growth Plan, ERGP, which shows that there is some level of articulation that at least the government has a way to go.

Stability in the forex market

Again from what has happened from the stabilisation of foreign exchange, you find out that there is a convergence, which actually has helped to ensure that there is a bit of stability. The greatest problem anybody will have about entering into a market, is that when you are entering a market, no matter how lucrative it is, and you are not sure how you can come out and at what price, it becomes a problem.

So the stability in the forex market has helped. Secondly is that since the Acting President took over office, there seems to be a purposeful leadership. And again, they have been able to arrest the volatility Niger Delta. The government has been able to really refocus the economy appropriately. The fact that at least the Minister of Finance is now coming up with measures to ensure that prices are being stabilised has also helped. In the agriculture sector, you also see what Audu Ogbe is doing as well. There is seems to be an enhanced income that is coming from area. We are now in a kind of situation where people can predict that the economy is on the verge of recovery.

Then, again, if you look at the results that are coming from the stock market as well, they are quite impressing. Ordinarily, most of the stocks were at one point or the other trading at below their fair value.

And so, once people begin to have additional income, naturally, they will look for somewhere to put it. If you look at it, it is like a web that is trying to indicate that the economy is being focused properly and all the negative decisions that are coming from the government where they have policy somersault are being tidied up and are focused appropriately. All the Ministries Departments and Agencies, MDAs, and other agencies in the economy seem to be properly focused and are working in the same direction.

If we have all these positives you talked about, how come foreign investors are rebalancing their portfolios and taking their money out of the country because the data also showed that foreign investment outflow outpaced inflow during the period?

The reason is the simple fact that they are foreign investors. Those guys have hot money; they look beyond what is happening in the economy. There are other political issues that they are looking out for. You see the kind of politics that are being played by the powers that be at the Aso Rock; it does not show serious indication as to where the government is going and so foreign investors are sceptical about this. The average local investor is already immuned to such politics because we are used to it.
What would help in sustaining the interest of the domestic retail investors in the market?
The greatest issue is that there must be policy consistency and the Central Bank of Nigeria, CBN, must be careful with what they do with interest rate as well as all the money market initiatives they are taking. They have retained the MPR at 14 per cent. Once there is relative stability that people can see, that will help. You see the way the foreign exchange, FX, has gone now; there is a convergence towards N360/dollar and we are saying that it is still too high. We think it should be at a bit lower rate. And, then, what the federal government is doing in terms of borrowing also matters.

I think the government is borrowing at a relatively too high cost as a sovereign nation if you look at some of the bonds they are floating. I wonder how much somebody will have to make in the market in order to pay an interest of up to 15 per cent and still make profit and maintain overhead.

So, these are the critical issues. What we saying is that once the consistency achieved already in the economy is maintained, then people will continue to behave in a peculiar manner, but once you begin to have policy somersault, then that will send some wrong signal to the market.