Nigerian Capital Market Lacks Long Term-Liquidity – Ogiemwonyi | Independent Newspapers Limited
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CEO Interview

Nigerian Capital Market Lacks Long Term-Liquidity – Ogiemwonyi

Posted: Jul 29, 2016 at 7:03 pm   /   by   /   comments (0)

Victor Ogiemwonyi is the pioneer Chief Executive Officer of Financial Derivatives Company Ltd a foremost Financial Advisory Firm in Lagos. He was until 1991 with former NAL Merchant Bank Plc, the oldest and one of the most respected merchant banking houses in Nigeria where he received his Investment Banking training.

In this interview with Bamidele Ogunwusi, Ogiemwonyi bears his mind on the performance of the Nigerian economy in the first half of the year.


Who is Victor Ogiemwonyi?

Victor Ogiemwonyi earned a BBA in Accounting and an MBA in 1981 from Texas Southern University. An alumnus of LBS Chief Executive programme, he has attended several courses both locally and abroad, including INSEAD and The New York Institute of Finance. He is a chartered stock broker and a member of several professional bodies. He is vice chairman, of the Association of Issuing Houses of Nigeria and member, Nigerian Institute of Management (NIM).

I am a member of several capital market committees and at present a fellow and served as council member of the Chartered Institute of Stockbrokers (CIS) and chairman of the Institute’s Technical Research Committee and member of the Finance Committee. I am a member of the Capital Market Committee and Administrative Proceedings Committee (APC) of the Securities and Exchange Commission (SEC) and also on the board of the National Association of Securities Dealers (NASD) where I am the chairman of the technical committee on the establishment of an alternative securities trading platform. Other bodies in which I am a member include Association of Pension Fund Managers; Nigerian – American Chamber of Commerce; Nigerian – South African Chamber of Commerce and Institute of Directors (IOD).

How do you assess the Nigerian economy since the beginning of the year?

The Nigerian economy is at its worse in over a decade. The near zero growth at 2.8 per cent as at the last quarter published figures, puts us on a very dangerous trajectory. With our population at two per cent growth rate, we need to be growing at double digits rate for the next 10 to 15 years straight to have a reasonable standard of living. We have literally walked back in the last several quarters. Inflation is back to double digits.

The stock market is down more than 50 per cent and the currency is devalued 50 per cent (don’t mind those who are waiting for a broadcast to tell us the Naira is devalued) S&P has just downgraded us negative, for those who know what that means, cost of borrowing for us will go up with several other negative implications.

What is your take on the investment landscape in the country?

The Investment landscape is very unattractive right now. But we must add that because the Nigerians are characterised with difficulties also mean lots of opportunities. Navigating is where the difficulty lies. If you can create your own infrastructure, deal with multiple taxes, generate your own power and start your own school to train employees who come out of school with little or no skills then there is money to be made.

What are the challenges faced by fund management in Nigeria?

Fund managers face the same problems like every other operator in this economy, but have some specific problems of dealing in a volatile environment that is constantly changing. Your best investments become your worse in very short periods of time because the rules and the environment keep changing. Who would have predicted that the Naira will depreciate to N320 to the dollar? Or that it will take six months to put a cabinet in place and four months to pass a budget? This is very difficult economic environment. You will also have to deal with inadequate information to make decisions etc.

What are also the prospects of fund management in emerging economy like Nigeria?

The prospects are also great in the long run once we can get some things right. The needed reforms are coming even though sometimes slow. The huge development prospects also mean the fund management industry has long term growth prospects.

Most portfolio managers don’t look at retail investors rather they target high net worth investors what structures do you have in your organisation to encourage retail investors as regards mutual funds?

It is true that most Fund Managers don’t want the hassles of the retail investors. We have always focused on the retail end of the market because we believe in it. Making it profitable in a short time is the challenge. At long term, it is a profitable proposition once you can put in place the right structures to manage it. We have created mutual vehicles to do this for some of our products. The size to achieve a critical mass also presents its own problems. Most public mutual funds are not profitable because the size is not there.

The activities in Nigerian capital market have been on downward swing for a considerable period of time, operators and the regulators are worried, what is your assessment to the current situation?

My assessment is that the market lacks long term liquidity and this makes it hard to attract investors who don’t see growth in the immediate. Those who have traditionally provided liquidity have gone away one by one. The retail investors were driving away in the crash of 2008 with the casino banking crisis we saw and the severe losses that followed.

They have not come back. The banks that provided margin loans have also permanently stayed away and now foreign portfolio investors who want quick profits have also now left for good. We will have to seriously find some way to make liquidity available for the market. Those who talk of confidence are right but that is not the problem now. The market has gone through a lot of reforms and the regulation is much better now. Liquidity will correct the remaining issues.

What factors do you think accounts for what will make investors come to the market or stay away from the market?

Investors will come to the market if they know they have the chance to make money. They will come if they know that they can come out when they want to. They will come if they know that the market is well regulated. They will stay away if all these are not available.

Do you think the recent introduction of direct cash settlement will protect investors and eliminate fraudulent activities in the Nigerian capital market?

Yes. It is designed to make the market more efficient but it will have to take some time getting use to it. Most investors don’t have enough information about it and the system will have to work for some time for people to have confidence in it.

Do you foresee any state government coming to raise capital in the market this year going by the development in the economy?

Of course State Governments will come to the market to raise money once they settle down. Now more than ever the State and Federal Government needs the market to help them raise money to meet their obligation to the people. The state of the economy not withstanding there is plenty of money looking for safe investments. The State Government Bonds represent some of these safe investments. Individuals and companies go broke, governments may temporarily be illiquid but they don’t go broke because they can always raise taxes to pay their debt.

Do you think the offshore listing being embarked by some companies have a direct impact on the Nigeria economy?

No. Those that can list abroad and raise foreign equity are in fact better off. But for those who raise foreign debt capital and earn Naira, have a problem or are going to be in trouble soon. Where you raise capital; whether equity or debt has no impact negative or positive on our market. We will however encourage them to list here because it will have a positive impact on our market.

Would you advise investors, who had lost substantial amount to the stock market crash in 2008, to patronise the market?

The stock market is a long-term market. If you weighted out the last crisis, the chances are, that you may have recovered or near recovery until the recent crash relating to the uncertainties in the economy. Only those who borrowed to be in the market and have a lot of debt to worry about may have challenges.

Those who sold may have suffered, but it is better to find someone to help you with professional advice. What you pay is nothing compared to what you will gain if you use the right adviser. The market remains the most profitable in the long run. I will also advise that you invest evenly, that is, buy stocks at different times, at different prices and just hold it for a long time.

Only professional traders can really make money from trading stocks. Trying to trade your portfolio on your own will cost you money if you don’t know what you are doing.

What roles should the capital market regulators play in order to bring about effective and efficient utilisation of the market by the governments at different tiers?

The market regulators will have to embark on enlightenment of the public and governments and continually impress on the governments that the capital market is the market for long-term funding of infrastructure and it is a more appropriate market to fund long-term infrastructure projects.

What are the roles of the market operators in this situation?
The role of market operators will, apart from giving useful information to these governments and also working with others in the market, be to educate governments as issuers of securities and let them know the usefulness of accessing the market. Investors who buy these products and the general public who pay the taxes to service this longterm debts all need to be educated about the market.

Operators and everyone else need to push governments at all levels to privatise more of their services to the public as a way of making them self-funding when they access the market as well as provide better services because of the market discipline required.

We have seen this with earlier privatisation of government banks in the 1980s. Nobody remembers today that First Bank of Nigeria Plc, United Bank for Africa Plc (UBA) and Union Bank of Nigeria Plc were once Federal Government-owned.

What is your take on cost of investment on the Nigerian Capital Market?

The cost is too high but the problem is on the regulatory fees. Those costs will need to be reviewed. The volume of business in the market will not allow market operators bring their cost any further down. Anyway, competition amongst operators is stopping them from even charging full fees.

There is always a negotiated fee that, most times, favours the buyer of the various services. Investor education is very key to growing the market. It has a lot of benefits for everyone in the market. As for the operator, it is far easier to sell to a knowledgeable investor.

The best protection for investors is knowledge. Investing is about knowledge. We all have a responsibility to re-educate all users of the market. We need to employ some innovative ways for engaging the public. There are some very good ideas in the 10 Year Capital Market Master Plan.

What is your advice to the investing public?

The investing public needs to know that it is usual for markets to go up or down. The current situation will not last forever. When the stock market goes down, and is persistent, it usually goes down for a good reason. If the users perceive that the economy is unstable and cannot be predicted, they usually want to get out.

Investing is about the future, unless people can read the future more clearly, they will want to move into other perceived less-risky investments. After a while the risk is over-stated and the value in the market becomes irresistible and investors will flood back into the market and stocks rise and those who are in, make money.

The value in the market is at that point now or near it. Those who want to make money in the next wave must begin to position themselves now. The unusual low value of stocks now is due to the unusual events propelling the uncertainty, which, when they start to correct themselves, as they must at some point, prices will start to go up. Because no one can predict what that point is, you will have to invest broadly and consistently. But, do not borrow to invest in the market unless you understand the risk.

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