Brokers prescribe leeway to sustainable market rebound

Worried by the lackluster state of Nigeria’s financial market, stockbrokers under the aegis of the Chartered Institute of Stockbrokers (CIS) have stress the need for the overhaul of the financial market structure to attract more investors in the capital market.

Besides, the operators urged the Federal Government to set up a council, comprising different professional bodies to drive savings as a strategy to encourage investors towards medium and long term investment in Nigeria.

In a statement titled: “The Nigeria Economic Review: Outlook and Recommendations for 2020”, the institute urged the government to review the entire financial system for enhanced growth and development.

Specifically, the institute said the government must review the structure of the entire Nigerian financial system to raise the utilisation and development of the capital market, especially the fixed income and equity segments, to enable them to create a balanced and faster growth-inclined system.

According to them, there is a need to set up an independent council comprising banks, stockbrokers, mortgage institutions, insurance companies, and pension administrators to coordinate the mobilisation of savings in the country more effectively.

“Federal Government should institutionalise the funding framework for Capital Market Literacy (CML) in Nigeria by financially empowering CML-oriented bodies, as is done in France through the IEFP.

“The Tertiary Education Trust Fund (Tetfund) should allocate a portion of its fund to the Capital Market Literacy (CML) drive, and to the CIS in particular.

“As banks control almost the entire liquidity in the Nigerian financial system, they should support capital market investments, including re-introduction of margin lending with improved regulations,” the brokers noted.

Furthermore, the institute argued that the CBN, being the dominant institution that currently provides liquidity support for critical economic sectors, should extend its liquidity support to the capital market, including the equity segment.

“The Federal Government should direct pension funds in Nigeria to look beyond fixed income investments and also invest substantially in the equities market for liquidity and stability purposes.

“Greater tax incentives should be granted to companies and individuals in accordance with their levels of savings and investments in formal and recognized outlets such as stock markets,” they added.

The institute also noted that in Nigeria, economic policy was largely discharged by way of continuous interventions by the CBN, while the Federal Government’s policies also had a significant impact on performance indicators.

“Figures from the National Bureau of Statistics (NBS) and the CBN showed that although there were improvements as the year went by, the key parameters of economic performance were significantly below the targets set by the Federal Government’s Economic Recovery and Growth Plan (ERGP).

“Nigeria recorded a GDP growth of 2.28 per cent in Q3,2019, up from 2.12 percent recorded in Q2, but still far below the ERGP’s target of 4.5 per cent.The CBN’s website indicates that the price of Nigeria’s Bonny Light crude had hit $71.31 as at 27 December 2019.

“Nigeria’s inflation rate stood at 11.85 per cent YoY as at November 2019, but as at the time of writing this report, the National Bureau of Statistics had yet to release its report on job creation and unemployment.
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The last NBS’ data for unemployment was in Q3’ 2018 and showed that 23.1 per cent of the labour force was unemployed. The Federal Government, significantly, finally reached agreement with labour on a new minimum wage structure for the country, and for the first time in her recent history, Nigeria’s budget was signed into law ahead of the new year.

“The budget provides for the aggregate expenditure of N10.594 trillion and represents a fiscal deficit of N2.3 trillion. The Finance Bill which accompanied the Budget may place more burden on tax payers”, according to the statement,” the institute said.

In view of these, it observed that the money market continued to dominate the Nigerian financial market space with the CBN’s interventions in various sectors of the economy.

It states that significant among these measures was the directive that deposit money banks should increase their Loan to Deposit Ratio (LDR) to 60 per cent, and restriction of patronage by local corporate and individual investors in Open Market Operations (OMO) auctions.

“These contributed to the achievement of a stable foreign exchange rate and an increase in bank credit to the real sector, although Gross External Reserves dropped to $39.8 bn in November.”, the statement said.

However, the institute noted that for the equities market, despite NSE’s crucial milestones with the $5.07 billion listing by introduction of MTN Nigeria and the $3.8 billion ordinary shares initial public offering of Airtel Africa Plc in the review period, low liquidity continued to plague the stock market.

The institute added that the NSE’s All-Share Index fell 14.6 per cent to close the year at 26,842.07 points, while market capitalisation, however, closed on a slightly improved figure of N12.958 trillion.