Information Is key To Investing In The Nigeria’s Capital Market- Balogun | Independent Newspapers Limited
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Information Is key To Investing In The Nigeria’s Capital Market- Balogun

Posted: Mar 28, 2016 at 3:00 am   /   by   /   comments (0)


‘Foreign Investors will not come back until CBN devalues the Naira’- Balogun

Managing Director, CSL Stockbrokers Ltd, Mr. Gboyega Balogun, in this interview with Nkasiobi Oluikpe, speaks on the International investors exit from the capital market and its effect on 2016 budget. Excerpts:

As one of the leading Institutional and corporate brokerage service providers in the country, how can you describe activities in 2015, relating to the capital market and outlook for 2016?
The second half of last year was faced with dwindling global oil price and the risk of currency devaluation. Both factors affected the capital market negatively especially when you consider that the major drivers of our capital markets are international investors.
We have seen the capital market depreciating drastically and the Index closing down at 17.4 per cent. It has negative implications with the value of shares traded on the Nigeria Stock Exchange (NSE) almost down by 30 per cent in 2015. Naturally; this has an effect on brokerage commissions.
In addition to that and from ours and many of the larger brokers’ perspective, almost 70 per cent of our activities were that of international investors coming to Nigeria. They are the most sensitive to currency devaluation and they have spoken with their feet to the ground which involves a sell-off .All that has proved challenging for the industry.

What have been the responses from your clients in 2016?
Our own clients at CSL stockbrokers are not ready to buy anything in Nigeria until the currency is devalued.
If there is devaluation, we will see the foreign investors come back to the capital market. Currently, they don’t agree with the Federal Government macroeconomic policies. Foreign investors, from their perspective, want to see a credible, macroeconomic blueprint.

CSL Stockbrokers and NSE are targeting retail investors with mobile apps portal. What has been the level of investors’ acceptance?
The acceptance of local investor’s is light. Mobile application and online portal are geared particularly towards retail investors and retail investors’ activities are even lighter. From a medium to long term perspective, we are strong advocates of mobile applications and online trading portals but in the short term, the activities on both sides are still low.
We need to create more awareness of our offering and there are still a few tweaks we need to make with our own mobile and online solution. Once that is done, we will conduct a proper launching. At that point, we will create more awareness.

Due to the announcement of decline in FCMB Q3 2015 earnings, the group share price has dropped. What do you see in investors’ sentiment?
It is not particular to FCMB Group but all listed share prices are down. I think FCMB group’s share has been proactive in issuing a profit warning. I suspect given the macroeconomic conditions we face, there would be more provision in the industry.

Are we expecting another bubble in 2016?
From the international perspective which is where we have buyers from, it is about the currency volatility.  If Central Bank of Nigeria (CBN) doesn’t devalue the Naira, foreign investors will continue to exit because as it is now, it is not sustainable.
Reserve is fallen to $28 billion, some argue it lower, and I think the import bill is about $3-$4 billion per month. It means we have 7 months import in our reserve, however if the figure is nearer $20bn, we will start to hit critical stage which I believe is 3 month cover.  The only way we can reduce demand for dollar is by devaluing it. If you want to sustain your reserve, it means CBN has to devalue.

Are you saying uncertainty is surrounding the N1.8 trillion Federal Government 2016 borrowing?

It will be a challenge for foreign investors to key in if they are not in support of the macroeconomic policies of the Federal Government. As of today, they are not in support of the macroeconomic policies of the government.
If there is devaluation in the policy, not just devaluation but that’s the key focus, it will create confidence. But as of today, it will make no sense for somebody to invest in Nigeria when they know that the country could devalue and are uncertain of the magnitude of the devaluation. They are still thinking of devaluation.
If I am to look at it from the stock market perspective, would you as an investor put money in a stock in Nigeria that is valued at $1.00 today when you know in 2weeks time, it is going to be valued at $0.50 or worse?. For foreign investors, it makes sense that the sooner you devalue, the quicker foreign investors will come in.

Aside devaluation, in what ways do you expect the 2016 budget to have impact on the capital market?
The 2016 budget is all about full implementation in order for it to have a positive impact on the capital market and economy at large. But the Federal Government has to fund it. There is a funding gap for which they need international investors to support. If the international investors don’t support it, it will be a difficult task for the Federal Government. The budget is very sound and logical but the big issue is funding.

CSL Stockbrokers over the years has joined the big league in volumes traded on the equities market. What is the drive behind this?

A number of years ago, we decided to go after International investors. It has been very successful because what we offer to a lot of these investors is the best of both-worlds.
On the one hand, we have a local presence but on the other hand through our international offices, we offer them International best practice when they come to us. International investors are able to get a local perspective as to what is going on in the capital markets. It is something our international peers cannot offer whilst feeling safe in the fact that their counterparty is regulated by the same regulators as they have become accustomed to.
Information is key and to invest in the Nigeria’s capital market, you cannot do this remotely, You must have a deep insight of what is really going on, which is where we come in for our international clients who are sitting overseas.
We have been able to develop that relationship with international investors and that is what differentiates us from the pack.

What is CSL Stockbrokers doing to drive domestic investors since their exit in 2008?

We are institutional brokers. We look primarily at your Pension funds, Asset managers and HNI/Family Offices.
Those are our primary focus. In terms of retail investors, particularly in periods of depressed activities and price volatility, we prioritize on the following two options for our clients. One is going through mutual funds, of First City Asset Management, which is a far safer option in times of price volatility. Furthermore, cost of execution is cheaper and there is an inherent ability to diversify one’s investment. Second is online real time solution, which takes away the human interface and allows clients access to all the necessary data to make informed investment decisions. Our core business however is institutional investors. We are a corporate and institutional brokerage organization.

How can the capital market support the nation’s GDP?

For the capital market to support the country’s Gross Domestic Product (GDP), we need a conducive environment for sectors within Nigeria to enlist on the NSE.
Right now, the full spectrums of the sector are not represented in the capital market. We don’t have the telecommunications, full complement of upstream oil and gas, power and industries companies listed on the stock exchange. When there is a better implementation in the economy, we will feel the required impact of the capital market on the nation’s GDP.
As of now, few companies would want to be listed due to decline in prices of listed companies. I think there is need for more conducive environment, cost of listing must be reduced and macro economy environment must be conducive for investment.

 With the fall of shares in the capital market, are you not worried?
Everybody should be worried. We brokers should be more worried because we are going to feel the full effect of it. But I think all these things are a cycle; they will come and go. The reality is that Nigeria is too big an economy to be ignored by Foreign Portfolio Investors (FPI). It is during these quiet times you consolidate on your relationship with these clients whilst at the same time think outside the box to generate incremental revenues.
It is important to note that so long as you can find the other side of the trade, and there is always the other side if the price is right, as a stockbroker whether a foreigner is buying or selling, we will still make our brokerage commission. They may leave now but they will be back.
We must note that there are different types of investors. If I am an investor with 5-year investment horizon or I have a strategic interest in a business, I will put my money in the capital market right now because valuations are compelling. There is still going to be more volatility over the next six to twelve months. As such, if you are a short term investor, you cannot stand the volatility, the stock market will be a very tough proposition
Nigeria is very well endowed with people and natural resources.

The rationale for not devaluing or limiting the supply of dollar is to limit the importation of inflation and force import substitution to allow industries develop locally.

There are many sectors the Federal Government can develop. Unfortunately, we are not quite there yet to pursue full import substitution and there will be the inevitable demand for imports to cover the gap. Government is looking into it but we will see how far it will go.