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How to sustain current upturn in Nigeria stock market

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To ensure sustainable stock market recovery and improve liquidity, operators have renewed calls for the regulators to fine-tune the processes involved in margin lending in the nation’s capital market.

Besides, the operators urged the Central Bank of Nigeria (NSE) to sustain the recent directive on the suspension of participation in the Open Market Operations, as well as initiate other favourable policies that would increase stock market patronage and rebound.

Speaking on measures that would aid the marginal recovery witnessed currently in the market, the operators argued that the regulators must fine-tune margin lending processes to provide adequate liquidity for sustainable market recovery.

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A margin or investment loan is a form of gearing that lets operators and investors borrow money to invest in approved shares or managed funds, using their existing cash, shares or managed funds as security.

The amount that they can borrow is determined by the securities in their portfolio, their Loan-to-Value Ratio and a credit limit, based on an assessment of their financial position.

Prior to 2008-2009, many investors/brokers that engaged in margin lending had their fingers burnt, following the crash and loss of value in the shares (collateral), due to the global meltdown.

Following the losses suffered by operators and investors, the Securities and Exchange Commission (SEC) and Central Bank of Nigeria (CBN) issued rules on margin lending in 2010.

Since then, there has been zero activity regarding margin lending, hence SEC and CBN are making moves to review the rules and make them flexible and attractive.

The operators maintained that the review and amendment of rules guiding margin lending will go a long way in providing needed liquidity and boost activity in the capital market.

Furthermore, they added that investors, on the other hand, must leverage opportunities and low stock prices to increase their portfolio for future capital appreciation.

The Managing Director of Cowry Securities Limited, Nkoli Edoka, said if capital market regulators would fine-tune the issue of margin lending, it would create liquidity and sustain market appreciation.

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“If the CBN will continue to make policies that would push the market the more like this, and hold on to it, it would provide market liquidity.”

“The suspension of participation in OMO bills, and other fixed-income should be sustained because that is one of the major policies that would sustain the market.”

“Again, if NSE and SEC will fine-tune the issue of margin lending, that would create liquidity to sustain the marginal appreciation witnessed currently in the market,” Edoka noted.

Also speaking on how to sustain market rebound, the former President of the Chartered Institute of Stockbrokers, Ariyo Olushekun, stressed the need for the CBN to sustain the current suspension on Treasury bills participation, as well as introduce more favorable policies to grow the market.

He pointed out that it is not in the interest of the market or economy for the CBN to reverse such a policy that has attracted market patronage or engage in any form of policy summersault.

“It is not in the interest of the market or economy to reverse the policy that is currently pushing the market. It is also not in the interest of the market for institutions like CBN and other institutions to engage in policy summersault.

“I would say this current policy is the right one. A policy that encourages fixed income investment does not help the market and economy because companies that are engaged in the real sector should be able to raise funds to operate at virtually no cost.

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“They should be able to make money, create employment and end up paying a dividend to investors and the investors will make money, they will make from the dividend, and capital appreciation and the economy will grow,” he said.

Olushekun urged investors to take advantage of the low stock prices in the equities market and increase their portfolio for future capital appreciation.

He said: “Investors should see the opportunities in the market. Many of the stocks are performing well and companies are coming out with good results, therefore, their true values are actually above the current prices and what that means is that it is an opportunity.

“Also, when investors look at their options, there are no much returns now in the fixed income market because what is available there is actually below the inflation rate, therefore, you put some money in the market, you think you are able to keep your principal but the real value of the principal is actually being eroded by inflation, so the stock market is the place to go.

“I think people need to sees that, again, the regulators need to reassure investors that their interest would be protected and I think we have a very robust conflict resolution mechanism in the market that protects investors and ensures they do not lose anything.

“When any body wants to mess up with your investment, there are rules that would protect you and you will always get what is due to you.

“The operators also need to up their game really, by ensuring that they give the right advise and services that are to the best interest of investors and that they also report other operators that try to do what is not right to investors,” he added.

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