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Playing safe in a turbulent investment environment


Nornah Awoh, equity analyst, says every market has its cycle. He was speaking about the fluctuations in Nigeria’s stock market and the fact that the market has done well in recent times.

The Nigerian stock market closed on a positive note last year. However, there was some volatility in the market in February as market capitalization fell by about two percent. Things have picked up again with the market gaining by little over 14 percent as at Wednesday, March 7th.

Awoh says it is no big deal really. “There will always be an upward swing again along the line. What is missing in the market is the knowledge gap,” he said.
Indeed, Nigeria’s capital market had always been upbeat. Just before the bubble burst in 2008, interest in the nation’s capital market was high. The retail end of the market saw major inflows because of the high returns investors could garner from quick profit-taking activities.

The result of events in 2008 to 2010 was that individual investors pulled out of the market, diverting their funds to what they considered safer options like the money market and properties even while experiencing lower yields.

Kayode Jamiu, Head of Trading, Apt Securities and Funds Limited, says the problem of investor confidence is caused by a lack of investor education. According to him, education is key to getting the desired stock market in the country, and stockbrokers like himself should take time to adequately advise and educate their clients.

He says such enlightenment is key to keeping foreign investors interested and attracting new domestic investors. “Let us build confidence in this market,” Jamiu says. “If the foreign investors can see the kind of confidence we display in this market, they will surely come and push up the market. And we can do better by ourselves.”

Although Jamiu believes that a market with local and foreign players is good news, he doesn’t think local investors should abandon the market purely to foreign portfolio investors. “There is no way we should allow foreigners to be controlling our capital market,” Jamiu says.

Awoh agrees with him. “Foreign participation is welcome,” says Awoh His concern is when foreign investors become the dominating factor in the market. For instance, when foreign players in the market hold up to 50 percent stake, that becomes a challenge, because anytime there is policy that seems not to be favourable to foreign players, there will be movement in large numbers away from the market, and that becomes a big challenge for the local players (investors).

Founder and Investment adviser of the AOE Investors’ Club, Akingbe Olatunji, believes foreign portfolio investors are gradually removing their funds from the market.

According to him, most of the money to be made in the stock market has already been made, as most of the stocks have become fairly or fully valued; investors are already cashing out from stocks and are either holding their money in cash or Treasury Bills until another opportunity to enter the market presents itself. Akingbe says “For the foreign portfolio investors, while that may be a factor, I see it as more of ‘I have made good profit why risk it in a market where the opportunities are not as attractive as they used to be.’”

He believes that the implication of investors crashing out of the equity market for the economy is that “we are likely to see an increase in the demand for fixed-income investment instruments.”

Jamiu says domestic investors should keep playing in the market, and for good reason. “I will enjoin the domestic investors to make sure that they invest in this market, because these stocks trading at battered prices before are now getting better, and it is the best period for investors to take positions. Such investments are also advisedly to be made long-term and not short-term. They should engage in value investing, which means that you invest in stocks that have strong fundamentals.”

Analysts say every market will fluctuate, but within a reasonable band. What makes the market is the ability to move in terms of the prices; the market’s lead indicators such as the All-Share Index and Market Capitalisation will swing up and down from time to time.

Jamiu, Akingbe and Awoh all agree that looking up to foreign capital and investors for hefty participation in the market may not always be advisable, Therefore, a need for the government and the pertinent regulatory agencies to encourage local investors to play a more critical role in terms of the proportion of the market they hold.

They say government needs to show more commitment to growing the stock market by having more stable and market-friendly policies. For instance, should government decide to abrogate withholding tax, yields in the capital market will definitely rise, and there will be an increased attraction to investors, which will invariably cause an upward swing.

And, even though the temptation to see the capital market as a barometer of the economy is strong, Akingbe says sometimes, there is a lag between what happens in the market and in the economy. “The fact that there is lull in the market presently does not mean that the economy is slowing down. What is currently happening in the market has more to do with the emotions or perception of most of the operators in the market rather than with the economy.” 


A version of this article appears in print on Business Eye Magazine, Volume 11 Edition 3| Place order | Current edition | Subscribe