2009 Outlook: Key Questions for the Director-General of the Nigeria Stock Exchange

If you had an opportunity to ask the Director General of the Nigerian Stock Exchange a question, what would you like to know from her?

Some investors, fund managers and equity analysts have sent in their concerns/questions; some of which were addressed by the DG, NSE at the Annual Review held at the Nigerian Stock Exchange on Monday, January 12, 2009.

However, the following questions, submitted by our board of analysts remain unanswered:

1) Bail-Out: Why has the Federal Government refused to provide a concrete bail out plan for the capital market, not just lip service? Do we think this will change with a change in the Federal Ministry of Finance given that other forward looking economies recognised the need to re-build confidence in its capital markets by taking actions that would bring about the much desired liquidity needed, albeit; with much more emphasis on regulatory control and accountability?

2) Alternative Market Strategies: The NSE (an SRO) along with other regulators has been talking about the introduction of simple options to the capital markets for over two years now. Why has this not been implemented?

At the moment, there are only two strategies investors can use in trading the NSE (that is, buy or sell) and in a free fall or in a downtrend as we have currently, there are usually no buyers for willing sellers.

Even with the introduction of market makers and ‘funding providers’, the makers will not be willing to buy shares that they know are fundamentally weak (given that the incidence of corporate governance and believability of financial reporting in the country is subject to risk discounting risk here relates to poor observance of standards and reporting requirements). If options are available or other strategies, investors can play the market even in a downtrend. The limited options/alternatives for traders at the NSE is keeping sophisticated ‘international’ investors from the NCM. The market appears too one directional.

3) Margin Accounts: With banks not providing margin loans to investors, it appears difficult for the Nigerian Stock Market to maintain any upward momentum or traction.

Has the Director General looked into other alternative source of financing for investors and brokerage firms?

Can the Federal Government provide brokerage firms guaranteed loans which can be loaned to investors based on strict guidelines as an alternative to an outright bail-out?

4) Demutualisation of the NSE: How does the NSE intend to conclude this key 2009 internal goals during a market cycle where most investors are not able to fully participate? The conversion of the NSE into a listed company appears desirable and precedents in Eqypt, J’borg and New York support the viability of such a proposition but to do so in a year where strategic management changes and movements have taken place, and will take place, as well as the governance and process capacity issues/challenges taking place will require a broad range of investor support.

We are interested in knowing more about the conversion of the not-for-profit organisation to a value and profit driven one in such a way as to allow each willing and able investor to participate.

5) New Products: The NSE recently launched five new indexes (including the NSE 30) working with reputable firms that have a history of creating such. We believe it is a welcome development that forward looking firms may create products around.

When will this be introduced in the market and does it not portend a dire signal for firms not included in the index or their sector not considered profitable enough to have a sectoral index?

Is it possible for the criteria or/and weighting of the index be made available for equity analysts?

6) Dealing with Current Challenges: in the last few weeks, there has been a spate of occurrences, not on such a large scale as to pronounce it a major crisis but it is a crisis itself, given that it is occurring in a market with confidence at its lowest ebb. Dud cheques have been issued to investors and fellow fund managers alike. What does the aggrieved receiver of such cheque have to do and what measures are in place to address these challenges given that it goes to the heart of the ‘confidence’ question?

7) Investor Enlightenment: The astounding reality of the market and indeed our larger economy was best summed up by the former president, Olusegun Obasanjo, who in a departure from the less than believable comments of the CBN Governor, declared that the current crisis will visit the poor and rich alike.

If you consider the yearning of the hard working employee, market trader, artisans, aspiring manager, church goer and widower, who in the heat of the capital market boom were plastered all over with offers and media blitz on the viability and security of investments in the NCM, and who now have to worry about the expected income due from the market to meet obligations but cannot access it; you will know that the current meltdown will affect people differently.

Hope is a casualty in this market, so also is the believability of the operators because of their silence. Investors have simply been told to wait and allow ‘nature to take its course’. The caveat emptor that should have been ringing out in the first place now becomes breaking news at this tail end of market downturn.

These are the first death throes. The question is what sort of market will remain?

Yet, one heard not one expression of real remorse or accountability from any of them. They had nothing to offer except the time-worn counsel of confidence men: trust me. Instead of protecting our market or at least preparing the investors and players alike for the possible challenges, we did what we have always done best as a nation…deploy self denial as a shield from the truth.

Maybe not everyone was playing the ostrich game, at least not brazenly. While the CBN Governor embarked on a self effacing trip on being nominated to attend the world deliberations on the crisis, the Ministry of Finance was silent, shooting down everything pushed forward to ameliorate the situation without providing an alternative. The Director General of the NSE, to her credit, continued to show empathy, and spoke consistently about her heavy burden and desire to see that the ordinary citizen/investor is assisted to overcome the current challenge.

The question she has to provide now is: how do we hope to achieve this? What should the investor do from tomorrow?

Source: Proshare Nigeria