Reactions trail the Nigerian Stock Exchange’s stock prices freeze
June 12th, 2008 Tunde Brown || tunde.brown@stockmarketnigeria.com
In a development that is aimed at saving the seemingly declining confidence of the investing public, the management of the Nigerian Stock Exchange, on Monday, in an unprecedented attempt at halting the further slide in share prices of equities listed on the Nigerian Stock Exchange, suspended listed stock prices from further decline. This suspension is expected to last one week, while the NSE tries to convince the Central Bank of Nigeria (CBN) to reexamine its decision on Margin Trading. In effect, all stocks that would have been marked down are to revert to their close price as at June 6, 2008.
It would be recalled that the CBN had earlier this year, issued a stop order to banks running margin accounts. There were worries that margin trading is risky in the sense that using borrowed funds to invest in securities, amplifies gains and losses. Analysts further opined that the use of borrowed funds in speculative activity was tantamount to gambling. However, there are unverified claims that the leverage in the market is estimated at N2.5tr or 18 per cent of market capitalization.
Capital market operators have now attributed the CBN directive to the persistent slide in the All Share Index and the Market capitalization, which dipped by 13 per cent or N1.65tr between March 6th 2008 and 9th June, 2008. The All Share Index also witnessed a decline that left it closing at 56,407.80, down from 66,371.20 in March 9th 2008. Regulators are of the opinion that most of the stocks are undervalued, and that this move is necessary to arrest a further decline in investors’ interest.
While some have reacted to the action of the Nigerian Stock Exchange in an optimistic manner, others urge restraint, as the NSE makes move to give impetus to market indices. In an interview, an expert likened the NSE’s directive on price movement as, “…introducing circuit breakers without any support”, adding that “…freezing the market now is a sign of panic by the regulators, which would make the investors panic more.”
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I just discovered this article dealing with ‘margins’which I cannot say is any different from short sales and High leverage derivatives. This peoblem is not bank for bank problem, the problem is with CBN backed securites and representatives. With thin money deposit and athletic bends we can only expect our money to always increase but this increase is only based on volume/inflation not performance. Part of the problem with inflation in the country is because of this short naked sales…either by major banks or thier rep. Unless CBN ceases to be the lender of the last resort, it will always incur wholesale struts from small timers with frugality. The whole CBN busines is not really transparent, neither can we put pay to Nigeria owned derivative market. Look at this so called Transcorp group, a nightmare for people, yet those laying out thier papers for new Bank accounts and PMP with thin layer are merely creating problems for the banking institution and Stock exchange. If this current inflation in the country continues, we should expect redemtion of debt. Calculate Money velocity first before short implementation