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Portfolio investors’ dominance sign posts further market vulnerability


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Nigeria

Image:Nigerian Stock Exchange

The continued dominance of foreign portfolio investors at the Nigerian Stock Exchange (NSE) exposes the stock market to further vulnerability, operators have warned.

Currently, the market records approximately year-to-date (ytd) of 14 percent .The NSE All share Index closed at 21,599.57 points in the first half of 2012, up from 20,730.63 points as at December 31, 2011, representing an appreciation of 4.19 percent, against the appreciation of 0.85 percent in HY1 2011. The market capitalisation gained 5.55 percent (a gain of 6.04 percent in US$) to close HY1 2012 at N6.53trn (US$44.22billion), compared with the gain of 0.93 percent in HY1 2011 at N7.99trillion.

But stockbrokers believe that foreign portfolio investors who currently account for over 80 percent of market activity, contribute greatly to market volatility, a development that may reverse the gain so far, in the event of any major unpleasant development in the local or international market.

Analysts say with the crisis in Europe, Asia and America, the local market could be threatened, should foreign portfolio investors dump their shares and pull out to reconstruct their portfolios back home. The fear is that given the volume of shares held by offshore investors and the liquidity problems, local retail and institutional investors may not be able to take up the shares, leading to excess supply and decline in prices.

Bisi Oni, deputy managing director/chief operating officer, Fund Quest Financial Services Limited said, “The market is vulnerable with the level of foreign portfolio investors. Your guess is as good as mine, in terms of the impact on the market performance. If we have local investors playing big in the market, it will scale up the market performance level.”

However, there is optimism that the market making arrangement would take off towards the end of the year. Stockbrokers under the aegis of the Chartered Institute of Stockbrokers (CIS), expressed optimism that by this year-end, there would be a take-off of the much awaited market-making activities at the Nigerian bourse. Reports had earlier shown that the selected ten market-makers were seeking concessions such as the complete waving of all trading fees, among others.

Reacting to the possibility of market-makers take-off, Albert Okumagba, group managing director, BGL said “before the end of the year, the issues that are being addressed by the Nigerian Stock Exchange would have been resolved.”

Speaking yesterday, ahead of the maiden annual national workshop of the Chartered Institute of Stockbrokers (CIS) with the theme “Working the transformation agenda –the real issues,” Ariyo Olushekun, president/chairman of council, Chartered Institute of Stockbrokers (CIS) said “the market recovery has already commenced.

Year-to-date performance around 14 percent shows that the market has started recovering. This recovery should be sustained. There are two types of foreign investors –foreign portfolio investors and foreign direct investors. Foreign portfolio investors underprice value stocks.

Local investors should come in to sustain the market growth, as it offers opportunity to make significant returns.”

Oni said the workshop would bring together policy formulators and policy influencers. According to him, “All the key sectors –Agriculture, telecoms, and power, which would be discussed are vital to the performance of the stock market. When issues are made and policies are properly implemented, it will impact the performance of the market.

This is a strategic incursion into the policy making process of the federal government, so that it could favour the stock market”.

Article Credit:Businessday News 

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Updated 7 Years ago
 

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