Stockbrokers have dismissed speculation about imminent bubble burst in the Nigerian stock market, even as the performance indicator, the market capitalisation has risen by from N 4.293 trillion at the beginning of the year to close last Thursday at N6.127 trillion

On the first day of trading in the new year, investors at the floor of the Nigerian Stock Exchange (NSE) staked N699.99 million naira (150 naira = US$ 1) on 129.76 million shares in 3,802 deals, as market capitalization closed at N4.992 trillion naira while the All Share-Index ended at 20,838 .90 points.

Mr. Johnson Chukwu, Managing Director/Chief Executive Officer, Cowry Asset Management Limited when asked about the impending burble burst said, “I do not foresee an asset bubble in the Nigerian capital market in the near future.

Although low interest rates which is one factor that contributes to asset bubble is currently present in the Nigerian economy, the other critical factors that contribute to asset bubble are presently not applicable in the economy. Such factors as cheap and easy credits are not applicable as banks are presently not granting much credits. Other factors as influx of foreign portfolio managers to take advantage of low priced assets in an economy is also not happening at present.

In addition to the absence of these conditions, another factor that will make it difficult to have as asset bubble in the Nigerian capital market in the immediate future is the badly damaged investor confidence. Most investors who have lost significant value of their investment would rather wait for an appreciable recovery before they will commit additional resources into the capital market.

Given this scenario, I believe that the Nigerian capital market will continue to experience a topsy-turvy movement in the next one year until confidence is fully restored in the market.”

Mr. Chinenyem Anyanwu, Managing Director/Chief Executive Officer, Dependable Securities Limited in his reaction said, “ I do not buy the idea and position of Alhaji Sanusi Lamido Sanusi that the market may be forming another bubble ready to burst. While the governor is entitled to his own opinion, I think his opinion aught to be an informed and backed up opinion as a public figure.

Again this morning, we woke up to read in the dailies that the governor likened the stock market to a casino or gambling system. The CBN later wrote in the dailies the next day that he was quoted out of context.

Be that as it may, the CBN governor needs to be called to order and made to understand that he is sitting atop a very sensitive structure. It is also important that he is told that he does not as a public figure and governor of CBN have a private opinion. His opinion is that of the CBN and is seen by the general public as such.”

Continuing, he said “ Back to the original issue, I think we will have a prolonged fluctuating situation as we are witnessing presently, but as soon as the AMC becomes operational and banks resume lending there aught to be an upwards stabilisation of price. We need to be reminded that the melt down was a global affair not Nigerian in particular. What affected Nigeria is the ripples and as the rest of the world is fixing their problem, we are supposed to do our bit in order not to be left behind economically.”

Another stock broker, Mr. Tunde Adeyemi, Managing Director, DHTL Securities Limited in his opinion on the issue of assets burble burst said, “ Firstly, am not sure the CBN governor is well inform about the current states of the market, though, there were some activity, but no usual pattern in the market performance lately. like i said some couple of months ago, the market will stabilize at an index of 26,000 (+-5%). Also, the statement needs to be checked properly or is it an assertion that the CBN wants all the key banking stock to be down for the new acquirer to take at a ridiculous low value?

Continuing , he said, “Presently there is no activity in the economy, thanks to the CBN governor’s not- taught- through policies, but the market should witnessed stabil;ity at this level, but towards the end of the quarter there should be real improvement due to some of the financials of about 15% of the listed companies, which will be encouraging in line with analyst forecast and also we might be seeing some artificial result from the banking sector that are reaaranging their books to show how profitable they are; this might full the market to make some upward movement towards the last quarter of the year.
In summary,  think there is no cause for alarm and from my opinion ignore the CBN false alarm; but what the market needed is adequate stimulus to both the operators and the banking system, with the regulators becoming more effective in compliance and risks management.
It is only a state of caution and no crisis.”

Mr. David Adonri, Managing Director, Lambeth Trust & Investment Company Limited, in his reaction said, “ Ordinarily, investment in stocks serves as hedge against inflation but paradoxically, stocks are presently deflating while inflation is rising. Sooner or later stocks shall beat inflation.
If liquidity in the economy continues to increase from various sources recently identified by CBN Governor and alternative investment outlets become saturated, stocks may experience another round of boom. At the height of the bubble in March 2008, the All Share Index (ASI) attained 66,000 points but has since decelerated to about 25,000 points.

Several Analysts believe that Nigerian equities market is currently under-valued and that room exist for its non-inflationary appreciation. However, an ASI above 30,000 points is difficult to contemplate now and may not be sustainable due to excessive pressure to sell by investors who have speculated with borrowed short term funds. Furthermore, the monetary authorities have deployed formidable monetary tools to subdue threats of bubble formation in the entire financial market.

Notwithstanding, if full domestic confidence is restored and massive foreign portfolio investment pours in, without resuscitation of the primary market, reactivation of the industrial loans segment and further deepening of the equities market to absorb any excess liquidity,  occasional over-heating may continue to feature in the Capital Market.”

However, one question that need to be asked now is when can the Nigeria stock market experience another crash. In market crash relates to time frame or other fundamentals or both.

As far as evidence from market crashes around the world can take us, no factor can give convincing reason why markets could fall by an extraordinary degree without any significant prior announcement or change in the world. Since 1996, the largest fall in the NSE All Share index was 16% on the 22nd of Feb, 1996. However, the highest appreciation prior to that time was on a day before when the index gained 10%. The next peak moment occurred on the 23rd of January, 1998 when the index lost 10% having gained just 0.25% the previous.

day. The fear of a stock market crash has never been stronger than it is today. One reason for that is that we’ve all been conditioned by at least one or more major stock market crash around the world in our lifetimes and a few mini-crashes and selling panics to boot. These market  reversals and the damage they inflict tend to leave deep-seeded memories and emotional scars that are not easily healed with the passage of time. Crashes occur immediately after market tops as in the case with the crash in Nigerian stock market.

Some other recognized signs for crash of the market are : High valuation level, fall in dividend yield, wide spread bullish trends of equity without fundamentals, among others.