By Akintola Omigbodun

There has been over the past few months a steady decline in the share prices of companies quoted on the Nigerian Stock Exchange, NSE. This decline has been attributed to a number of factors. In the first place, it has been suggested that the politicians were selling their shares so as to meet their expenditure for the 2015 elections.

Jonathan-Buhari

Also, foreign investors are said to be selling their holdings in order to minimize their losses following the devaluation of the naira with respect to the United States dollar. There is also the decline in crude oil prices which would imply that the economic prospects for Nigeria are not very good.

We should therefore expect in the future that politicians would invest in shares after an election and that they would sell these shares before the next election. We should therefore tell the politicians what legislation we expect them to pass into law and what policies we expect them to follow for our investments to give us good returns. We should note that savings deposits with banks attract an interest of 3.6% which is higher than the dividend levels paid by most companies.

The attraction of the shares traded on the NSE is the expectation of price rises but we have finally arrived at a moment of truth with the Access Bank rights issue. It was announced during the previous week that the rights issue would be at N6.90 per share while at the close of the week, Access Bank shares traded at N5.18 per share on the NSE. This is the reverse of what we would normally expect which would be the issue price being lower than the market price.

The national elections often lead to changes of the persons occupying political offices accompanied by changes in policies. The two most recent elections took place in 2007 and 2011. The first major shakedown of share prices on the NSE took place in 2008 and it was attributed to the global financial crises. However, with the appointment in 2009 of a new Governor at the Central Bank of Nigeria, CBN, the CBN intervened in eight Nigerian banks with the shareholders of these banks essentially losing their investments in these banks. The Asset Management Corporation of Nigeria, AMCON, was put in place to acquire the non-performing loans in all the Nigerian banks.

The banks were expected to operate under guidelines that kept their non-performing loans to a minimum. Early 2010, a new Director-General was appointed at the Securities and Exchange Commission. By the time of the 2011 national elections, recovery of share prices on the NSE above pre-2008 levels was limited to a few companies in the breweries, conglomerates and food/beverages sectors.

Between the 2011 national elections and the present, share prices on the NSE first rose to new levels for some of the companies to be followed by a price shakedown with an average price loss of about 40% from peak values for companies that had given good results during the period.

Again, the banks give cause for concern as non-performing loans are expected to show significant increases. If one reads all that is stated in the annual reports of companies about credit risk management, one would not expect to have substantial individual non-performing loans.

The prosperity of individual companies should aggregate to the prosperity of the NSE. If the banks grant the preponderance of their loans to companies that fail, then the banks and the companies that are performing would give weaker results. When we ask candidates for political offices what they would do when elected, questions are in the areas of education, health, security, social infrastructure but hardly any on the securities industry.