Government has always been lethargic about the capital market, says CIS Boss

Adedeji Ajadi is the Registrar and Chief Executive, Chartered Institute of Stockbrokers (CIS), a professional body established by Act 105 of 1992, to provide training for professionals in stockbroking, securities and investment, fund and portfolio management, asset management, investment management, and other related fields. CIS, which is also responsible for the regulation and discipline of members of its profession, is an active member of Association of Certified International Investment Analysts (ACIIA) based in Switzerland. In this interview with GODFRY OKPUGIE, Ajadi spoke on a wide range of issues.

As investor apathy continues to deepen in the Nigerian capital market, what is your position?
Investors’ sentiment is a function of the macro-economic situation, which impacts the capital market. Thus the present investor apathy is not unexpected. The present GDP growth rate and general economic outlook do not encourage investors to participate in the stock market, as most people are pre-occupied with basic survival.

However, it must be noted that the stock market is cyclical and is information-driven. As the government continues to work assiduously to re-inflate the economy, we may begin to witness positive reactions from investors.

Is there any correlation between the on-going exchange rate crisis and market volatility?
Not in a strict sense. Market volatility is a function of emerging information, which informs and drives investors’ sentiment either to buy or sell which is typical of automated stock markets.

However, the present exchange rate position may have caused foreign investors to beat a retreat, which has impacted on market turnover and velocity.

What are the main factors responsible for the current slide in the equities’ market performance indicators?
It relates to the points I have just addressed. The present market direction is determined by three major factors, namely, negative public sentiment, adverse macro-economic scenario and retreat of foreign portfolio investors due to the prevailing exchange rate policy and attendant uncertainty.

Economists have argued that if the huge loans that banks advanced to the oil/gas sector go bad, there might be the need for a bailout fund for the banks. Can such huge money be raised from the market now in view of investing public apathy?
For a successful market offer, timing is very critical. The present time, which has informed investor apathy may not be auspicious for any huge offering in the capital market. However, it must be noted that the success of any offering is also dependent on effective marketing and the involvement of cornerstone investors who may be sanguine on the offer based on critical evaluation of key ratios and market outlook. But generally speaking, the time is not auspicious. This is why there has been a dearth of public offerings.

As the banks are not in good position to grant credit, will this not hamper companies’ ability to get working capital to enhance their operations?
Traditionally, Nigerian banks are averse to lending to the real sector, and especially for long tenors, which has been a major hindrance to inclusive economic growth. But this might not be the case with working capital, thus banks could still lend but cautiously and to their ‘A’ list customers.

How would you respond to the view that both retail and institutional investors may have embarked on massive share dumping to raise money for survival?
That sounds more like a conjecture. Basically, stock markets operate on the principle of free entry and free exit. And there are different categories of players in the market, including speculators, who habitually play the market for capital gains. Therefore, not all investors buy and hold their shares, otherwise the market may lose velocity and liquidity.

To what can you ascribe the weak corporate earnings that have characterised the performance of many  companies quoted on the Nigerian Stock  Exchange?
There are several factors which determine a company’s bottom line, such as the macro-economy, competition, management, public sentiment, government policies and so on. The macro-economic situation is adverse even as the prevailing foreign exchange policy has set constraints and limitations for many corporations. This has culminated in uncertainty, which definitely would impact negatively on companies’ operations and bottom line.

Why is the Federal Government adopting a lethargic approach towards raising funds from the capital market to execute capital projects?
Generally speaking the Federal Government has often been lethargic about the capital market, which is ironical in view of the strategic importance of the market to the growth and development of the economy. Perhaps this is why the stock market is not fully integrated into the economy and does not serve as a true barometer of the economy as expected. It could also be for this reason that stakeholders in the capital market have not properly structured their operations such that they could constitute a formidable front, which would make the market an attractive platform for the government to raise funds.

What are the implications of requesting all the multinational corporations in the country to get listed on the Stock Exchange by legislation?
It would be wrong for government to legislate listing by fiat. Listing on the stock exchange should be a voluntary thing. The strategy should be through moral persuasion, and incentives including tax benefits and innovative packages. Anything to the contrary would amount to coercion, which is against the principle of democratic capitalism.

How can the e-divided issue be handled to achieve the aims of the initiative?
This can be achieved through massive and sustained investors’ education by all stakeholders.

What are the contributions of the Chartered Institute of Stockbrokers to public enlightenment on the investment opportunities in the Nigerian capital market?
The institute, as a major stakeholder in the capital market, has been firing from all cylinders to sensitize and educate the investing public on the concepts, dynamics and opportunities in the capital market through career talks at tertiary institutions, publications in national dailies and magazines on topical issues in the market and a nationwide capital market literacy campaign, which incorporates the production of a documentary on the capital market, which will be broadcast in three major television stations for not less than a quarter. We at CIS recognizes the power of information in driving growth and development in the market and are determined to explore it for maximum impact.

What are the government policies that can boost investor confidence in the market?
Government should show concern and make regular and guided pronouncements on the capital market to boost investor confidence.
Worldwide, communication is a major tool of building investor confidence. It helps in creating a proper value perception. In business or markets, perception and public sentiment are very vital. If your image is good and public sentiment is in your favour, then the probability of success is higher.

What are the benefits of Over-The-Counter (OTC) market to the growth and development of the Nigerian Capital Market?
The OTC market helps to further galvanise the hitherto latent investments in the market. Being a platform to trade unlisted securities, it ensures the creation of more liquidity in the market. And it must be noted that bonds are traded mostly on OTC platforms and the bond market is the largest securities market in the world, which brings to fore the strategic importance of the OTC market.

If you agree that there is a nexus between the development of an economy and the capital market, at what point can the capital market pick up in view of the current uncertainty in the economy?
It is difficult to project a definite time frame. Market recovery depends on environmental dynamics, both global and local because the capital market is just a sub-set of the economy. Any positive change in the larger economy will spin off on the market and vice versa. The drastic fall in oil prices and the situation in the foreign exchange market have posed major constraints to the economy. Investors are largely in a let’s-wait- and-see mood. It is hoped that the government will come out with the right policies that will trigger investments in the capital market.

How would you advise stockbrokers that are out of job as a result of continuing investor apathy at the moment?
There are job losses in many other sectors of the economy with attendant socio-economic disequilibrium. It is unfortunate but they have to take it in the strides. However, a stockbroker is a multidisciplinary professional, who can creatively engage in other things outside trading in stocks and shares. As they say, necessity is the mother of invention. We, however, hope there will be a turnaround in no distant future.

There are insinuations that interest in the Professional Examination of the CIS is waning due to poor market outlook. How true is this? Are there other factors militating against the interest of prospective candidates?
There is no other factor militating against the interest of prospective candidates besides that of the prevailing lull in the market. But it must be noted that the decline is not drastic, as we have been recording encouraging number of prospects even in the present circumstance, the reason being that CIS has been reinforcing communication and marketing.

Could you shed more light on the Professional Diploma in Securities and Investment of the CIS?
The CIS Professional Diploma in Securities and Investment enable undergraduates to start writing the exams while still in school or students awaiting admission into higher institutions just like ICAN ATS, ACCA Diploma etc. It is a foundational course for anyone wishing to start or progress his/her career within the financial services industry, a fast-track route for non-graduates to join the finance, securities and investment profession in Nigeria.

What are the benefits of the Memorandum of Understanding (MOU) that was recently signed by the CIS and a similar body in the United Kingdom?
CIS believes in forging strategic alliances with reputable international bodies for the actualisation of our professional objectives. These affiliations also provide our members with the opportunity of obtaining flexible internationally recognized qualifications, which would enable them to work in any international finance centre. It also allows us to tap into knowledge and skills from other parts of the globe. This is critical because the capital market is very dynamic and we need to keep our members updated on emerging global issues.