Nigeria’s Capital Market versus the Global Financial Market crisis(1)
October 8th, 2008 Ugonna Maduagufor || ugonna@stockmarketnigeria.com
The capital markets all over the world have been experiencing some level of depression for quite some times now, especially in the month of September. According to Nigerian Stock exchange’s monthly summary for the month of September, the Nigeria market witnessed a 20 months lowest level at a turnover of 10.65 billion shares worth N134.4 billion in 197,213 deals for the month as against the preceding month of August, which finished with a total of 17.4 billion shares valued at N169.64 billion in 249, 937 deals. Indicating a remarkable drop in volume, transactions and value.
In spite of the August 26th major stakeholders policy decisions which includes: (i) the interim 5 percent maximum and 1 percent minimum unit shares price movement, aimed at stabilizing prices and reducing the free fall in the secondary market; (ii) Cutting down on transaction fees by the Nigerian Stock Exchange and the Securities and Exchange Commission; the Central Bank of Nigeria, ensuring adequate liquidity in the Capital Market; (iv) Commercial banks advised to provide longer term credit facilities for Capital Market investments. The All Share Index has most often continued to drop downwards. At the moment the House has invited the Nigerian Central Bank governor and the minister of finance to explain plans for shielding the Nigerian financial system from the ongoing global financial crisis. Another current news on this issue is the plan for Nigerian banks to inject the sum of N600 billion into the Capital Market as against the opposite trend being witnessed in the United States, England etc; where the Government is planning to rescue the mega banks and other financial institutions.
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Some one should advice Soludo better. he should not inject this 600 billion into the market just because he can. I can understand the fear and I can understand why it remains a problem but this attempt to press of the rest of the country on what others are dealing with is not the right answer drop in stock market at any given day. There are two reasons why a governemnt can intervene in market…one in terms of instability that is want driven and the other recession …which is need in short order. There is no basis for these two part problem in Nigeria. I can respond in full if the avenue is made for it.
Let us be clear that such intervention leave us a problem of disinflation which is counter point…mark for mark counterpoint for athletic market. I think Soludo wants to show the world that the crisis that is faced is equally affecting the rest of us.
The Nigerian treasurer if it has its ways would be left with the problem allocation and price. There is also problem of timing and stcok bias and term auction. What brought this far is short term sale under the given condition, we can point to fire saling and moon waalking as reason for short falls in stock prices.
MARKET balance sheet is facing recovery, many of the banks that engaged in very NAKED sales are still in the process of recovery and now we are talking about disinflation. What is then the parameter for financial engagement between the CBN and the banks. One can always expect aturn around recovery and improvement driven the attitude of the market but how can banks recover on the shortest possible note is there is government backed intervention. It will only creat an atmosphere of price manipulation. Markets need banks to lend, banks need volume and good stuff to lend but governemnt intervention will disinflate the price and that will congeal the movement of money and market direct.
You need time to react but low percentage is the only way to press play of the markets…something naturally offensive to bank performance.
Britsih prime minister was talking ‘iquidation’and cash flow the other day….I was like this man is too Keynesian to be real of the formation of crisis. Some people speak of investor confidence…and I wonder markets they follow. The market is frozen and we are in teh process of defreezing the markets and capital raise in one to accomplish if there is wealth plus…else we can free the market from external influence that is blocking the foreign currency.
As a man completely opposed to the Euro I think this whole business of coordinated Global market response is quite dangerous. I think it should be respective to nations and thier markets. I say this because we are faced with two options in terms of reaction…one, individual economic measures versus cordinatd world response.
By individual economic measures I mean Treasuers/ treasuer bills/ stability/physical reduction/ buying power/ fixed government allocation/ attention to fixed income and labor market/inventory/ excess capacity/ commercial default*/ physical balancing of budget/Equilibruim/decopuling/capital bail out
By cordinated world response we are talking taft, Basle, feds/interest rate wall street and so on
Either way…Eu stand to win
All can never be well att the time,it’s therefore though unbearable but has to be well comprehended by all so that we not in the act of trying to treat our general disease end up in a pitious and worse killer virus.Soludo or no Soludo,we should all like at the economy in general view of it and tackle it once and for all but be avoid a shameful fall, Nigerans but ake up to the mare fact that the longer this down trend continues, the more injurious it becomes on the capital marker for about 60% now put a logo of failure on the market.
I think bailout is not the best option for Nigeria now. All explanations made it clear that global financial meltdown is as a result of unsecured loan granted by some banks in US and in Europe. We are okay here in Nigeria. Wise investor(s) should buyout stocks from foreign investors that are scared. Thank you.