Investors and operators in the Nigerian stock market have listed low disposable income, low awareness, lack of incentives and high yields in the fixed income market as some of the factors discouraging domestic retail investors from patronising the market despite low prices of stocks.
The bearish trading that has pervaded the market since last year, has led to decline in the prices of most stocks, thereby opening entry opportunities for investors. Despite the low valuations, domestic investors are not taking advantage to increase their holdings.
In the month of September, for instance, the value of domestic investments fell while that of foreign investors increased.
But speaking to THISDAY on why investors are not taking advantage of the low prices of stocks, market stakeholders said thinner disposable income and lack of enough enlightenment awareness are major factors.
A stockbroker and Managing Director of Network Capital Limited, Mr. Oluropo Dada, said the disposable income of people was getting thinner on account of double digit inflation and ever increasing domestic bills like school fees of the children, electricity bills among others.
“This is affecting savings and without savings, there cannot be investments. Also, there are many competing investment outlets that are safer and in the short term more attractive than stock market investment. Treasury bills and federal government bonds are in this category. It is assumed that rational investors will patronise markets with higher yields and safety,” he said.
Dada, noted that less than 10 per cent of the population patronise the stock market , possibly due to lack of education about the role of capital market as an alternative investment.
“Besides, various government’s interventions in terms of good policies and positive pronouncements have been somehow lacking compared to what is being witnessed in the money market. The Central Bank of Nigeria (CBN) should have seen the capital market as complimentary and not in any way in competition with the money market,” he said.
Pointing to the way forward, the stockbroker said investment education should be directed towards small savers and retail investors with emphasis on the benefits of stock market investments.
“Tax incentives on stock market transactions should be granted by the government. This will go a long way in reducing cost of transactions,” Dada added.
An investor and Chairman, Ibandan Zone Shareholders Association, Mr. Eric Akinduro, said the major stimulant to investment is availability of investible income and good government t policies.
“Nigerians are aware of investment ideas. Most of the retail investors have years of capital markets operations experience, if they have enough money today they know companies with good dividend polices and good fundamentals. Awareness with negative policies like increase in VAT rate and double transaction charges with high withholding tax of 10 per cent and over regulated market will always put off investors,” Akinduro said.
On his part, Moses Igbrude of Independent Shareholders Association of Nigeria (ISAN), said low patronage of the stock market by retail investors is due to lack of needed and relevant information on the operations and the dynamics of how the capital market can be used to create wealth for the economic well-being of interested investors either short or long term.
“The investor empathy is caused by what happened in the time past during the melt down, that negative perception still remains in consciousness of the people and are not willing to risk their money in the market,” he said.
Igbrude, said another factor was that, the operators in the value chain of market are not willing to invest time and money to sensitise the Nigerian public to arouse their interest especially the stockbrokers who benefits in all transactions that involves investors buying and selling of shares or other instruments in the market either because they feel the commissions are too small and it is not worth it to invest in marketing of their services.
“The process of opening a stocking account now is so cumbersome that it is discouraging because of the know your customers (KYC), Securities and Exchange Commission (SEC) should look at these processes to get feedbacks and review their regulations from time to time as the need arises to reflect the reality of the current prevailing environment,” he said.