The Chartered Institute of Stockbrokers, the Association of Stockbroking Houses of Nigeria and the Association of Issuing Houses of Nigeria want the Central Bank of Nigeria to create an intervention fund of N200bn to be accessed by the market makers to shore up the capital market.
This move, they said, would be a short-term measure to cushion the effects of plummeting stock prices on the Nigerian Stock Exchange.
The three bodies made their common stance known in Lagos on Wednesday during a meeting on the state of the market.
The ASHON President, Mr. Emeka Madubuike, said each market maker should be availed of between N1bn and N10bn to stimulate the market.
He said the Securities and Exchange Commission should also consider structuring accrued dividends to shore up the market, adding that in recognition of the importance of the capital market, the government should make a pronouncement on the state of the market as a form of comfort to the investing public.
Madubuike said, “The market operators are working closely to seek an audience with the government for further interaction on the state of the market. The government should support the market by buying and warehousing shares as it is done in advanced markets.
“For the immediate, the CBN should create an intervention window of about N200bn to be accessed by the market makers to shore up the market.
“There should be a policy for the banks to operate zero interest rate to stimulate activities in the capital market. Stakeholders will embark on sustained enlightenment campaign to enhance capital market literacy.”
He urged the government to continue with the privatisation programme of critical sectors of the economy in order to increase the breadth of the market, while also stressing the need for it to raise long term funds through the capital market to finance the 2016 budget deficit.
The President, CIS, Mr. Oluwaseyi Abe, said the capital market was going through challenges that were not uncommon with other markets, especially the automated markets, which operate in a crest and trough pattern in response to variables in the macro economy and within the market itself.
This, he noted, was so because the capital market remained an integral part of the economy, which ideally serves as a barometer for measuring the pulse of the economy.
He explained, “Moreover, we operate in a globalised economy where geographical barriers have been broken down by the Internet; so, global trends tend to create a domino effect in various economies and markets.
“Until 2008, the Nigerian capital market had remained relatively stable. The original problem of the market can be traced to a lacuna created by the CBN by failing to regulate banks’ involvement in margin loans for speculative trading and the central bank’s mismanagement of the information to stop margin loans, which created panic in the market and coincided with the 2008 global financial meltdown.
“It must be noted that margin loan is not a bad thing per se. It is a normal stock market practice but it has to be regulated, otherwise it has the potential to destabilise stock markets when things go awry, especially for small and developing markets.”
Since 2008, Abe said there had been a lot of transformational changes structured by the regulatory authorities to place the market on a stronger pedestal as a result of which the market rebounded.
But because stock markets are cyclical in nature and respond to emerging trends, he said there were bound to be crest and trough periods as presently exist in the country.
“Presently, the southward direction of the market is determined by three major factors namely: adverse macro-economic situation largely due to a drastic drop in the price of oil; negative public sentiment, which is related to the state of the macro-economy; and retreat of foreign portfolio investors, which is related to the CBN policy on foreign exchange.”
He said the market had depreciated by about 21.25 per cent since the beginning of the year due to sell pressure and investor apathy.
A former President of the CIS, Mr. Olushekun Ariyo, advised investors that this was the time to invest in the market as many stocks were trading below their intrinsic values, whereas their fundamentals were still strong.