The Chairman, Association of Securities Dealing Houses of Nigeria, Chief Patrick Ezeagu, has advised the federal government to develop a strong political will to fix the economy as being advocated by various experts. He also called for patronage of the capital market by government for long-term borrowing. He spoke to Goddy Egene. Excerpts:
What can you ascribe the bearish trend observed on the Nigerian Stock Exchange (NSE) despite impressive corporate earnings and relative stability in the economy to and what is the way forward?
The state of the market mirrors the larger economy of every nation. But beyond this, the domestic institutional investors such as the pension fund administrators (PFAs) would rather hold fixed income securities. We should not forget that some foreign portfolio investors have exited the market due to fears of uncertainties. The way forward is to encourage and educate retail investors to continue to believe in the fundamentals of the market, especially, corporate earnings. The government should also ensure that National Pension Commission (PenCom) directs the PFAs to increase their investments in equities. As a matter of policy, PFAs have long term investment horizon. Foreign portfolio investors would return as soon as the market stabilizes.
The federal government has constituted Economic Advisory Council (EAC), led by Professor Doyin Salami. What advice do you have for the council?
The council has its terms of reference and everyone expects a turnaround of the economy, of which the capital market is an integral part. The recent presentations at The Platform had put into perspective, what one can call the real antidote to our ailing economy. One particular statement made by Professor Chukwuma Soludo that Nigeria should change its economic model. He underscored the need to focus on wealth creation, rather than sharing revenue from crude oil. It is sad that Nigeria still leans heavily on income from crude oil with all its vagaries in the face of occasional external shocks.
So, you much believe that presentations by the speakers on The Platform recently has identified Nigeria’s economic problems and the way forward?
I am of the opinion that if the federal government has the political will to implement the recommendations by the speakers who dissected our economic challenges, there shall be respite in all sectors. Our capital market largely depends on the development in the economy. It is clear that the solution to investor apathy should begin with the government’s ability to fix the economy. The political will has not been fully demonstrated.
How would you advise existing and potential investors to take position?
Existing and potential investors should seek the full advice of securities dealers, the stockbrokers for sound professional advice, and each investor will receive peculiar advice based on the outcome of profiling and the immediate market circumstances.
So what should investors consider in selecting stocks to buy?
The selection criteria are relative. It depends on the securities’ performance, both historical and current, demand and supply of securities, market hearsay, risk appetite of the investor and investment expectations.
How will the move by the federal government to liberalize the industrial sector of the economy impact on the capital market?
Government policies usually have merits and demerits. One believes that the government had properly examined what the market will gain directly or indirectly from the liberalisation, especially if the idea was to expand markets for industrial goods and enhance capacity utilisation of the sector in which some of the companies are quoted on the exchanges
What are the implications of the federal government’s re-introduction of Value Added Tax (VAT) on capital market businesses?
We believe that the conditions that necessitated the waiver of VAT on capital market transactions are still prevalent. Therefore, its reintroduction will definitely set the market backwards in terms of reviving investor confidence. The re-introduction will increase cost of transaction on the market and deepen uncompetitiveness of our market.
What policy initiatives should the government put in place to accelerate long-term growth of the capital market?
The government should take the lead of patronage of the capital market to access long term funds. There should be tax incentives for listed companies and also consideration of bailing out operators who suffered together with the banks in the past as banks were bailed out at the end.
With the recent approval granted FMDQ Securities Exchange as a full-fledged securities exchange, how will this impact on the market and stockbrokers?
It’s a welcome development. The approval granted FMDQ will further expand our market and create more trading opportunities for operators and investors alike.
Now what are the challenges facing stockbroking business today and how can these challenges be addressed going forward?
Every profession has its internal and external challenges. Stockbrokers as securities dealers contend with myriad of challenges, including investor apathy, lack of liquidity and leverage. Unfortunately, there are no quick fixes. We require a fundamental and systematic change of attitude and commitment of all stakeholders to investor education and operators’ integrity.
What are the efforts being made by Association of Securities Dealing Houses of Nigeria (ASHON) to strengthen investor education?
Investor education is not a project solely for the ASHON. We have been collaborating with the entire market participants and the regulators to ensure that the ideals of the market are communicated to the general public. We are also involved in the Capital Market Literacy programmes and other initiatives like financial inclusion which accelerate investor education.
The Half year is gone, what is your assessment of market outlook for the second half?
The market outlook for the second half of 2019, precisely, the fourth quarter is expected to be better given the inauguration of the Ministers and the likely establishment of economic policy thrusts of the government. Also for the third quarter, the relative performance of quoted companies shall begin to manifest, thus, inducing greater participation of investors that would want to take advantage of the expected good corporate performance.
As a capital market operator, how would you respond to the government’s ban on forex for food importation and is there any implication on the capital market activities?
Generic bans do not augur well in any market. There are a lot that were bound together in the sector of food. We expect that inability of a proper definition to what constitutes food will one way or the other disrupt the economic system. This will create loopholes for diverse interpretations and counter moves. I believe that Items- specific bans are more effective.
What is your final word to stakeholders?
Many people still erroneously perceive the capital market as mainly for trading in equities. This is not so. The capital market is not just for equities. There are other asset classes such as fixed income securities and derivatives that are traded on the market. This is one of the reasons why it is improper to call those who deal in these securities stockbrokers. The appropriate name is securities dealers. This will be addressed when the relevant Bill is passed into law. It is the equities market that has been relatively down, the fixed income market and the commodities market have shown signs of sustained growth. Securities Dealers are becoming more sophisticated in planning building diversified portfolios for their clients. This is the beauty of a dynamic market.