Reviving interest in stock market investments
Five years ago, retail investors watched in panic as their portfolios and the stock market plunged by 70 percent while total market capitalisation fell to a five year low of N4 trillion in 2009, from N13 trillion in early 2008. The stock market fell by 46 percent in 2008, 33 percent in 2009 and 17.4 percent in 2011.
The spike in oil prices to $110 per barrel in 2008, which flooded the banking system with oil revenues, lack of adequate regulation, low financial literacy or consumer sophistication, and poor corporate governance all contributed to the slump of the stock market, and loss of investor confidence which continues till today.
Retail investors have since then largely stayed on the sidelines, and in the process have missed out on an explosive stock market rally, which has seen the broad NSE All Share Index rise by 98 percent from its 2009 lows.
The All-Share Index has risen to 39, 222 points (November 25, 2013), from the 2009 low of 19,803.6 points.
Recent market data suggest that, foreign investors and large institutional investors have fueled the stock rally, which has pushed the NSE-ASI up to a market capitalisation of N12.54 trillion ($78 billion).
Total foreign transactions were equivalent to 50.81 percent of trading on the NSE or N801.25 billion ($5 billion), between January and September, 2013, according to the most recent transaction data provided by the exchange.Transactions by foreign and domestic institutional investors were equivalent to 75 percent of all trades as at September, 2013, according to the NSE.
Domestic transactions which peaked at 85.2 percent equivalent to N3.5 trillion in 2007 fell to 38.6 percent at the end of 2012 and a value of N508.6 billion, according to stock exchange data.
The Net Asset Value (NAV), of mutual funds, which are a popular investment tool for individuals, stood at N45.11 billion, (equivalent to 0.36 percent of total market capitalisation) of N12.45 trillion as at the week ended November 15, according to data from the Securities and Exchange Commission (SEC).
This highlights the risk aversion by retail investors, as they chose to earn between 2 percent – 8 percent on average on savings and time deposits, while the stock market rose by 35.4 percent in 2012.
The bearish sentiment expressed by retail investor’s mean they are missing out on a chance to participate in to the superior inflation adjusted returns, compared to bonds or cash that the stock market provides over time.
While Nigeria’s October inflation of 7.8 percent was the lowest in 5 years, inflation has stood at double digits over the past decade.
We believe there should be a general campaign championed by the Government, Capital Market Regulators and Institutions to increase investor education and help young people gain interest in the stock market.
The capital market regulators should also make sure that strict corporate governance is maintained at the bourse to guard against the abuses of the past, and regain investor confidence.
The NSE says it currently has an estimated 5 million domestic investors which is a drop in the bucket in a country of 167 million people.
Stocks are the greatest avenue for wealth creation and accumulation, according to Billionaire Warren Buffet, who started investing from a young age.
A failure to attract the interest of a new generation of young people to stocks would mean Nigerian citizens losing an opportunity for long term wealth creation which the stock market provides.
BusinessDay