NSE DG, Oscar Onyema
There are indications that the nation’s capital market may have begun to positively respond to a cocktail of bailout measures introduced to revamp the market after the 2008 crash which led to serious erosion of investments.
The vote of confidence passed by two key stakeholders in the capital market last week was said to have been underscored by the rising appetite of both institutional and private investors in the nation’s equities market especially in the past nine months.
To show for this improved performance, a 25 percent yield was said to have been recorded so far in the current year.
A leading market operator, who is also Managing Director/CEO Goldbanc Management Associates Limited, Mr. Olu Abayomi Sanya, who threw the first salvo, said signs that the capital market is responding to some of the new policies being put in place, are already manifesting.
Sanya, who is also the chairman, 2012 Chartered Institute of Stockbrokers’ Annual Conference Committee, led a delegation of the conference committee members to the Lagos Headquarters of THISDAY newspapers on Thursday.
He expressed the optimism that the tempo of improved performance would be improved upon by the time other legs of the bailout measures are implemented in the course of the year.
His optimism was shared by the Director-General of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, who disclosed at a different forum that the fundamentals of the nation’s capital market are very strong.
The CIS boss had told THISDAY that the 25 percent yield recorded so far was brought about by a regime of discipline in the system, saying the CIS and regulatory authorities have intensified efforts to clean the system by constantly bringing erring operators to book.
Sanya said: “The market has been down since 2008 until the beginning of this year because to date now, we have done 25 percent yield and this came at the right time.
“Part of the things that allowed us to achieve a 25 percent yield is the fact that we have started to clean ourselves up in terms of discipline of erring members. As we speak, CIS deals with any erring member and such an operator will not find himself in the market again.”
However, Sanya said much of the improvement in the yield in the capital market could be traced to the activities of market makers assigned to handle the 16 selected stocks in the market.
The market makers, according to him, have been able to provide stability in the market, thereby engendering confidence among the investing public.
According to him, “Another reason is the introduction of market makers. One of the things we were lacking in our market at the time of the crash in 2008 was liquidity. What a market maker does basically is to provide liquidity for the market. As we speak, most of the stocks being marketed now have moved from where they were about two months ago by about 40 percent. This is because by merely saying that there is liquidity on a particular stock, it gives investors, whether on a short or medium term, the confidence to be rest assured that if he goes into this market and he buys this particular stock, if he wants to exit, there is always somebody there who is ready to give him a two-way quote. That again gives the market a boost in terms of the activities we have now.”
Saying the impressive showing will continue till the end of the year when higher yields are due to be recorded, Sanya said the level of confidence in the market would rise by the time more firms are captured by the market makers.
“Although I cannot project what will happen at the end of the year, but I can confidently say that as we move on, the yield will improve, it will not decline. The reason is it’s just about 16 stocks that are being handled by market makers. Before the end of the year, another set will join the basket and this means those new stocks joining the basket will also grow just like those ones we have now have leap in their prices,” he said.
The CIS chief who insisted that stocks are grossly undervalued in Nigeria said things would change for better in the course of time.
“As we speak, the price earnings ratio of the total market is so low. That means we have most of the stocks underpriced. An example is United Bank for Africa Plc. UBA’s net asset value is about N8 but if you look at UBA today, it is N4, so there is a haircut of N4. This shows that the bank is undervalued. In fact, all the banking stocks are undervalued. So if you look at that in terms of earnings and in terms of projections, you find out that most of these stocks are undervalued. If you consider stocks like Nestle and Nigerian Breweries for example, they are undervalued.”
The annual CIS conference, which comes up on October 10, according to him, will among other things showcase to the world those new things that are bringing positive change into market.
Meanwhile, the Director-General of the exchange, Mr. Oscar Onyema, has said there are approximately five million investors in the Nigerian capital market with foreign investors accounting for 81 percent of inflows in the market.
Onyema, who spoke in Lagos at an Institutional Investment Clinic, maintained that the fundamentals of the Nigerian capital market are very good.
He said: “It is interesting to note that at the end of 2011, the local investment breakdown was that Nigerian Institutional investors accounted for about 91 percent or N1.13 trillion ($7.43b) of activities in our market with Nigerian retail investors billing in 9 percent or N111.60b ($735.08m). These stats attest to the fact that we have in our audience today the major players in the domestic investor pool.
“It goes without saying that the Nigeria stock market is a goldmine yearning to be fully tapped. The fundamentals of the market are very strong. This is evidenced in the fact that the returns on investments of most of the companies quoted on this exchange remain one of the highest in the emerging markets…yet most of our stocks are still grossly undervalued.”