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Operators raise alarm over shortage of liquidity inflow in stock market

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Nigerian Stock Exchange

Worried by the high level of illiquidity currently constraining efforts to restore confidence in the nation’s stock market, operators have urged government to urgently initiate intervention measures that would help reverse the long reign of bears and revive the market.
  
The operators, who lamented the persistent sell pressure and investors’ apathy that have bedeviled the market since the beginning of the year, maintained that the market would not record any reasonable level of recovery if intervention measures are not put place to check the unprecedented lull.
  
Indeed, after posting a 26 per cent loss in 2016, the Nigerian equities market gathered momentum in 2017 with an increase of N4.5tr in market capitalisation.

This was from N9, 158tr at which it opened the year on January 3, 2017 to N13.519tr as at December 28, 2017. The All-Share Index (NSE ASI) rose by 43 per cent during the year under review from 26, 616.89 to 37,990.74.
  
The rally extended to the current financial year, as market capitalisation of listed equities stood at N13, 617tr as at January 2, 2018 and rose by N2, 074tr or 13.2 per cent to N15, 691tr as at Friday, January 26, 2018.

Also, the All-Share Index, which opened the year 2018 at 38,264.79 rose by 5,508 points or 12.6 per cent to close at 43,773.76.
   
Surprisingly, after the January and mid-February rally, the market recorded unprecedented reversal in performance contrary to analysts’ predictions.

The capitalisation, which stood at N15, 549tr as at Wednesday, February 28, now stands at N11.676 trillion as at Thursday, November 22, representing N3, 873 trillion or 33.2percent loss.
    
Also, the All-Share Index declined by 11,345.94 points or 35.4 per cent to 31,984.60 points from 43,330.54, achieved as at February 28, 2018.

This is in spite of strategies and strict regulatory framework and reforms introduced by the regulators to reposition the market for growth and development as well as increased the dividend yields of shares to investors.
   
They categorically stated that such intervention measures may not necessary come in form of injecting fund into the market, rather government can appoint receiving stockbrokers, target some companies and invest massively in their shares.

    
According to them, such huge investment from the government would control sell pressure, stimulate activities and attract more investors into the market.

Moreso, they suggested that government needed to introduce market friendly policies, reduce interest rate and public borrowing to stir up the supply side of the economy,
  
Specifically, the Managing Director of  Highcap Securities, Imafidon Adonri, said the stock market cannot record any form of  stability when interest rate is so high , causing liquidity to migrate from equity to fixed income market.
  
‘If government wishes to grow the market in a sustainable manner, then market friendly policies must be enunciated. The equities market has been down for quite a while, you can immediately sense that there is shortage of liquidity inflow into the market.
  
“But while will liquidity flow into the equities market when interest rate is so high in the fixed income market and equities market have been traded off.  When interest rate is excessively high, financial assets will flow into the fixed income securities.

He added: “So the fiscal authorities must initiate fiscal policies that will stimulate the supply side of the economy. Again, propensity to borrow by the public sector is a major factor that has contributed to interest rate hike because government is prepared to borrow at any cost, so public borrowing has to decline so that more investible funds will be available for private sector use.”

The Managing Director of Crane Securities, Mike Ezeh, noted that government can invest massively on the shares of some companies through receiving stockbrokers while ministry of finance incorporated, under federal ministry of finance would become supervising authority for such funds.
  
“The way it works, if they buy through them, they can target some companies, buy stocks of these companies and by the time they do this, there will be activity in the market and you see a lot of investors both foreign and local returning to the market. it would stimulate the market with liquidity. They should not give us money but invest and when these companies pay dividend it goes to them.”
   
The Chief Relationship Officer of Foreshore Securities, Charles Fakrogba, said: “The market is nose diving and investors confidence is low, we are now saying this is the time that government needed to come into the market and try to revive the market, the government must provide a framework for the general economy because the market is just trying to reflect what is happening in the general economy.
  
“ If the economy is doing well, the companies that operate in the market and companies shares that we trade will do well because they operate in the economy, so if they can produce and the cost of production so high, of course when they are selling their products and services, it will be so high.
  
“Because the purchasing power of the average Nigeria is low, of course they will not be able to buy and those companies cannot sell and they will declare losses. The only way that government can intervene is by policy formulation.
  
“Government should come up with policies that would impact the productive sector, work on the ease of doing business so that companies can produce and operate in a conducive environment,” he said.


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