Investors’ Exit Depresses Market Performance

nvestors’ exit depresses market performance
By Daniel Osunkoya
July 1, 2010 02:00AM
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A finance analyst has said that the exit of retail investors at the Nigerian Stock Exchange (NSE) contributed to the market’s wobbly performance.

In the last one month, the NSE has recorded over N260 billion losses on its market capitalisation.

Olufemi Awoyemi, managing director and chief executive officer of Proshare Nigeria Limited, an investment advisory firm, in a report, said, “Retail investors are out of the game.” Mr. Awoyemi said the retail market disappeared as a consequence of the illiquid status of investors who are still smarting from the huge wipe-out suffered from the market crash. On why investors have refused to buy stocks, Mr. Awoyemi said, “The access to non-savings leverage (margin loans) hitherto available from banks and brokerage firms is no longer available to all and sundry for obviously risk-based reasons.”

He said the estimated market is now about 80 per cent dominated by institutional investors with foreign investor influence. “Local market participation is dominated by pension fund managers who have the liquidity to continue to play in the market on a short term basis, leading to necessary book balancing adjustments,” he said. He added that the lack of commitment from investors is apparent in “the way stocks are bought and sold on short term basis -as investors are no longer keen about holding stocks for long term, at least for now.”

Asset management

Commenting on the possibility of the Asset Management Company of Nigeria (AMCON) solving most of the fund problems in the market, Mr. Awoyemi said, “It seems investors simply do not buy the argument of regulators that the asset company would ensure that their funds in the stock market are not lost -or their losses will be significantly mitigated. They point to the statements from the Central Bank governor that shareholders in the affected banks have lost their shares just as they deal with debt overhang arising from the leverages obtained through margin loans from brokers -a fate yet to be clarified.”

He said those who have any desire to still engage the market are simply not buying the argument that this is the best time to go in and mop up stocks which are low priced. “The long drawn out delay in executing the AMCON does not suggest to some that the regulators and managers of the economy get it. This view may be a bit far stretched and perhaps presumptuous but its impact is deafening.” Mr. Awoyemi, however, said the AMCON represents one of the solutions to address the economic condition in which the market is operating and not ‘the solution.’ According to him, a greater component of the solution required will have to come from the harmonization of the fiscal and monetary policies Nigerian economy is in dire need of.