• Big Time Players Quit, Auction Stocks
TO a layman, this is the time to invest in stocks because of their relative low value, while the market is also not attractive because it is suffering from the effect of double jeopardy, arising from the crashing market activities and the devaluation of the Naira.

Operators said the effect of the free fall in the value of the Naira is discouraging investors from being active in the market, where recapitalisation is now a strange phenomenon.

In developed nations, when currencies are devalued, it is to encourage exports, because the prices of local products serve as an incentive and a toast for foreign buyers. In the process, they earn foreign exchange, increase production and create additional jobs. Unfortunately, that is not the position in Nigeria

The naira extended its decline against the green back last week, falling to 302 at the parallel market, down from 300, a day after the Central Bank of Nigeria stopped dollar sales to Bureau De Change operators.Devaluation of the naira has direct impact on the price of stocks. This is because the stock market is like a leading indicator and reflects the mood of things to come before any other market does so.

According to reports,the Nigerian Stock Exchange (NSE) lost a total of N1.763 trillion during the fist two weeks of the year.Capitalisation, which tells the value of the stocks on the exchange, opened the year at N9.850 trillion during the first one week and closed towards the mid month at N8.087 trillion, having dropped by N1.763 trillion.

Also, the All-Share Index, which measures the aggregate value of listed stocks, equally dropped by 4,856.28 basis points to close at 23,514.04 as against 28,370.32 points it opened trading for the year.

For the year 2015, the Nigerian bourse recorded a year-to-year loss of 23.80 per cent, as the All-Shares Index lost 6,014.90 points or 17.36 per cent to close at 28,642.25 from the 34,657.15 it opened the year with.

The market capitalisation, which opened for the year at N11.478 trillion, lost N1.628 trillion to close at N9.850 trillion on Dec 31, 2015 due to huge price losses by some blue chips. This trend continued until NSE Chief Executive Officer, Oscar Onyema, allayed the fears, noting that the performance at the Nigerian Bourse was a reflection of the start of the economy, which would improve shortly, as all hands are on deck to bring a turn around to the situation plaguing the country.

However, analysts believe that potential investors might keep away from the market to watch the performance of the Naira and activities at the market for now, instead of investing.

The President, Chartered Institute of Stock Brokers, Mr. Oluwaseyi Abe, said the stock market is suffering from double jeopardy, arising from the crashing stocks and Naira devaluation. The trend he saidwas scaring foreign investors from the market.

“The stocks have been crashing and now we have the free fall of the Naira against international currencies. The stock assets at the stock exchange are denominated in Naira, which has gone through severe devaluation. The market is, therefore, not attractive to foreign investors that are comingwith their dollar. There is suspicion that the Naira has been devalued and this is double jeopardy because the market before now was crashing and now we have the uncontrolled fall in the value of the Naira. From January till now, we have lost 20 per cent of the assets at the stock market. There is massive sale of stocks. People want their money back; there is no demand for stocks. In just 11days of trading this year, we lost 21 per cent. The market is not just attractive to all investors,” he said.

To the Managing Director of First Registrars Ltd., Bayo Olugbemi, the market is no longer attractive to big time investors.He called on the government to officially devaluethe Naira to attract confidence of foreign investors.
“Foreign investors are the major investors in the Nigerian Capital market. Hence, the more naira to $1 at the official rate, the larger the quantity of shares they can acquire, the more attractive it will be for them to come here and invest,” he said.

What that means is that investors will need more money to maintain their standard of living. That may imply that they may have to sell off some stocks to enable them meet their recurring expenditures. Cumulatively, this explains the sell pressure that has kept the market down. This trend is likely to continue for some time

Olugbemi, who is also the President and Chairman of council, Institute of Capital Market Registrars (ICMR), submitted that the only way out for the persistent lull in the nation’s capital market is for government to officially devalue the naira.

Also speaking on the issue, the Managing Director of GTI Securities, Amos Aledare, explained that currency depreciation leads to a continuous rise in import prices and inflation, which, according to him, impacts negatively on corporate profits and share prices.

He also pointed out that the upsurge in interest rate from the increased inflation might make investors to divest from the market.
“Even foreign investors will divest from the local capital market of a depreciated currency, and this will lead to bearishness.”

He urged government to fast track the development of other sectors of the economy, adding that the measure would help strengthen the naira.

“Government should speed up the development of other sectors so that they can be producing massively and exporting to earn foreign currencies. This would make the naira to gradually appreciate,” he explained.

Corroborating their views, the Registrar and Chief Executive, Institute of Capital Market Registrars, David Ogogo, maintained that the fall in the value of Naira has negative impact on the purchasing power of investors.

“What that means is that investors will need more money to maintain their standard of living. That may imply that they may have to sell off some stocks to enable them meet their recurring expenditures.

Cumulatively, this explains the sell pressure that has kept the market down. This trend is likely to continue for some time. The CBN directive on foreign exchange should be implemented to the letter and generally, all Nigerians should be encouraged to manufacture some of the things we are currently importing,” he said.

The Managing Director of Crane Securities Ltd., Mike Eze pointed out that the depreciation in the value of the Naira has affected the stock market adversely, hitting harder on the local investors.

He explained that there is a buy advantage for the foreign investors because the shares are not dollar denominated.“A few dollars, when converted to devalued naira, will give them an edge over the local investors, who are buying with their devalued dear naira. You may have noticed that all through the latter part of 2015, the market was on the decline.”

The fall in the Naira has only compounded the prevailing lull in the market, since the period of economic meltdown that hit the local investors. Since then, the market has not recorded any significant level of improvement. Rather, retail investors have continued to lose their investment in equities.