Make the capital market more attractive to investors
Making the local stock exchange more accessible will attract more investors and ensure constant growth and development, writes CHRIS UGWU
One of the major challenges currently facing the Nigerian Stock Exchange is low trading volume. Trading in the market has largely been done by (mostly foreign) institutions, while domestic retail investors have not returned to the market enough since the 2008/2009 financial crisis. A few stockbrokers work with these foreign institutions which collectively control the major volumes traded in the market. Foreign investors are also highly sensitive and any information reflecting political and governmental uncertainty triggers a rapid market pullback, leading to a high level of volatility. Thus, the market still suffers from problems of confidence within the domestic sector. This is the main reason why the market needs an increased level of participation to improve trading volume and also contain the high volatility that is currently being experienced. Following the need to deepen the market, the Managing Director of the Securities and Exchange Commission (SEC), Mr. Lamido Yuguda, pledged the determination of the current leadership of the Commission to make the capital market more accessible to Nigerians in the aim of attracting more investors.
State of retail investors
The Nigerian Stock Exchange (NSE) last year said there were about three million retail investors in the market, representing only three percent of the country’s total adult population. The Division Head, Trading Business, NSE, Mr. Jude Chiemeka revealed this recently during the first edition of Retail Investor Workshop titled “Investment Masterclass: Making your money work”, organized by NSE. According to Chiemeka, “Nigeria has a population of over 190 million and is the second largest economy in Africa. However, the current financial inclusion indices of 48% leave much to be desired. “Financial inclusion is a priority for capital market stakeholders, and the Nigerian Stock Exchange is making it a top concern to help achieve Nigeria’s National Financial Inclusion Strategy, which is to reduce to 20% the proportion of Nigerian adults financially excluded. year 2020.” Chiemeka noted that the Exchange recognizes the need to improve investor participation and builds on recent capital market initiatives such as tiered KYC requirements for capital markets investments, as well as than on promoting the introduction of globally competitive investment products with low entry thresholds, to achieve financial inclusion. goals. “These initiatives have begun to yield positive results as the market has recently seen a resurgence in retail investor participation. “Market data from 2019 shows that retail investors outperformed institutional investors by 8% in January and then by 2% in March 2019. Over the next few years, various investment workshops will be held across the country, starting with this one here in Lagos. “Investors can expect regular engagements aimed at promoting financial literacy, building investor confidence, as well as the introduction of innovative, technology-driven solutions to drive investor engagement,” a- he declared.
Improve the market
The SEC had reaffirmed its commitment to making the capital market attractive to Nigerians of all ages and economic status. Yuguda said the Commission is implementing various initiatives to ensure that products and offerings in the market are accessible to young and old, which will further deepen the market. According to him, “When we took office, we were shocked to know that the average age of a central securities clearing system account holder was over 50 years old. CSCS is a custodian, so if you invest in stocks you must have a CSCS account. “The average age of this account holder was over 50 and this told us that young people are not participating in this market and when young people are not participating in any market then this market is doomed. And the today’s young people prefer to do things on their phones, if you have to fill out a pile of forms manually, young people won’t do it. We want to make investing in the capital market a fun experience.” Capital market experience begins with a bank account and eventually the distribution must also touch a bank account. So we decided to look at the whole process and find out what turns young people off. We started the process and saw how tech companies are providing much-needed relief from the kind of bureaucracy that occurs in the capital market. Yuguda disclosed that the SEC had recently approved an electronic bid for MTN and expressed the Commission’s enthusiasm that Nigerians, especially younger people, were able to participate in the bid. According to him “it was a tremendous success and we are very excited about it. Many young people who had never invested in the capital market accepted MTN’s offer. This is one of the first steps in many of the steps we will be taking to make capital market investing a much more enjoyable experience for young and old. We know we can move faster and faster, because the moment we can strengthen our IT, we can do so much more. “In this market, what we have seen is that where people have immediate access to interesting products in the regulated market, they then gravitate towards parallel markets and Ponzi schemes and the real task of Commission is to transfer as much money as possible to the regulated market away from Ponzi schemes.He said with electronic offers many Nigerians would be happy to invest in the capital market and that would deter people to patronize illegal schemes, thus leading to the development of the capital market and the Nigerian economy. identity, which would also help to reduce the problem of unclaimed dividends. “One area that we recognized we needed to address was the lack of identity management on the m market and this is an area that the Commission has really focused on. We’ve had a lot of unclaimed dividends in the market over the past few decades and we thought identity management might help solve the problem. “I think if we’re able to take it to a logical conclusion, it could unlock a lot more investors because I think the fact that people have money in the capital market and don’t have couldn’t claim it, it’s not only bad for the people who have that money, but it’s also a deterrent for those trying to get in because they don’t want their money trapped,” a- he said. The DG commended the relationship between the Commission and the UK Government, which he said had contributed to the growth and development of the capital market. The UK Deputy High Commissioner, Mr. Ben Llewellyn-Jones, also pointed to the need for the SEC to create more alternative investment options for all classes of people as one of the ways to keep people out of the unregulated space. : “The more alternative options you can create, the easier it is to rate Ignite people from the unregulated space and that’s why Sandbox is so appealing to us and why we encourage it. We meet these fintech players and they are tremendously motivated in their vision.
Need for awareness
Trading in stocks and other securities is more complex and volatile than in other markets, especially after the global financial crisis and how it reflected on the economic situation of the world and the local stock exchange which still faces a crisis of confidence. Nigerian Exchange investors, like their counterparts in other climates, need to be knowledgeable in order to make effective decisions regarding various investment products in the market and avoid scams in the market. Additionally, investors must learn to take responsibility for their financial decisions. The regulator is always blamed for its poor investment decisions, illiteracy and mistakes. Since education helps improve investors’ financial literacy, the most effective investor protection begins with a well-informed and educated investor. Some capital market operators in the country have asked the Securities and Exchange Commission (SEC) and NGX to work with market operators for a better structured public awareness campaign on the stock market. Managing Director/Chief Executive Officer of Crane Securities Limited, Mr Mike Eze, said public apprehension about the capital market would be significantly alleviated through a better structured awareness campaign which would be jointly anchored by NGX, FMDQ, SEC and market operators for the education of shareholders and the protection of their interests, in particular small shareholders. He said the average Nigerian investor was suffering greatly, with many losers being novice investors, essentially unaware of how the market works and relying on rising share prices, hunches and herd syndrome for their trading decisions. purchase of shares. “While considerable effort has been made by NSE and SEC to educate shareholders and address some of their complaints, I believe that public apprehension about the capital market will be significantly alleviated through an awareness campaign. better structured public forum which will be anchored jointly by NSE, SEC and market operators for the education of shareholders and the protection of their interests, in particular small shareholders,” he said.
For the country’s capital market to benefit from greater retail investor participation, regulators must ensure much-needed mental health in the market, as both local and foreign investors will feel protected and confident to participate when a market is perceived as fair, efficient and transparent with a strong enforcement regime.