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Stock market will crash in the next 15 months - Analysts

- Investors lost N1.5 trillion at stock market in 2 months

FOLLOWING the downward trend in the value of shares on the floor of the Nigerian Stock Exchange (NSE), the stock market may be heading for a big crash in a few months’ time, financial analysts have predicted.

The President of the Association of Professional Bodies of Nigeria (APBN), Mr. Bunmi Ajayi, told the Nigerian Tribune that there were danger signals in the economy, which, if not heeded, would spell doom to many.

He stated that Nigeria was ignoring the lessons of economic history and would not get away with it because what every nation needed to grow its economy was to first develop its agricultural sector and establish it well before going into industry.

Ajayi regretted that Nigeria was not doing either of these but rather it was into buying and selling, a situation that also led to the collapse of the stock sector of the United States of America sometime ago.

“We are doing a lot in developing this economy. This stock brokerage thing will crash. If we don’t learn from the crash of the American economy, we will never learn. Americans thought that they were wise. They were running from environmental pollution.

They sent all their factories to China to go and produce in China. They started playing round with money, with figures, with shareholdings and were not really producing. They were not manufacturing but spending money on money and figures on figures without solid structures,” he said.

The APBN president bemoaned the Nigerian situation, saying that the country had found itself in the same predicament without learning from the experiences of one time strong economies that suffered such a crash.

He observed that the banking industry that should serve as the service sector of the economy was not servicing the main sectors that would sustain the economy, which are agriculture and industry. “Now, where is the agriculture, where is the industry? So, what are they servicing and who are they servicing? They are servicing buying and selling. So, was the America and what happened to it?, it crashed,” he said.

A stockbroker, Mr. Kehinde Ajayi, said the value of most shares on the floor of the NSE was falling because the shares had been overpriced and were being placed where they actually belonged.

He also attributed the share glut to the rising level of inflation in the country, saying that “prices of goods are on the high side, people need money to cushion the effect. Those who could not get money from other sources but have shares have no choice but to dispose of some of their shares.”

In the same vein, Ambassador Olufemi Timothy, President, Shareholders Renaissance Association of Nigerian, said; “As far as we are concerned, the bearish trend in the market is not a good development. We are not being told what actually is happening by the Nigerian Stock Exchange (NSE).

“Another irony is that instead of allowing the forces of demand and supply to operate in the market as they relate to price movement, they are trying to guard against price fall which to investors is bad about the market.

“This singular action of the exchange in trying to prevent price fall is not good enough in the interest of the capital market development.

“Investors will be adversely affected, they may not know it now but later they will feel the negative impact. It is not good they are intervening without recourse to due process; it will affect foreign investment both in the short and long term,” he said.

But Mr. Boniface Okezie president Progressive Shareholders Association of Nigeria, believes there is nothing new about the present trend in the market.”

Okezie said: “What we are experiencing is that the fundamentals of companies quoted on the market are beginning to count. What have the fundamentals you may want to ask? If the fundamentals have being right then off course the prices will be on the up beat but if other wise then the reverse of what we are seeing will be the case.

“The situation in the market is however temporarily as the market would bounce back.” The capital market all over the world has always been said to be the barometer through which a country’s economic growth or otherwise is measured, more especially as it relates to the well being of it citizenry.

The market has always been an avenue where every economic unit which helps in the growth of the Gross Domestic Product (GDP) can easily be monitored on how best they have contributed alongside government policy measures.

Why this seems to be so, recent happenings in the market appear to be a fallout of the delay in the passage of the country’s budget, which market experts have argued is the major cause of depression currently being witnessed.

The lull in the market which has resulted in the bear taking hold of activities as at last Tuesday, June 10, caused a total loss of about N1.5 trillion by investors in the market.

However, the hold of the bear on the market has since caused capitalisation to dip by N1.17 trillion or 9.3 per cent in less than two months.

The capitalisation, which measures the value of all listed equities, fell from a historic value of over N12.6 trillion in the first week of March 2008 to close at N11.093 trillion on Tuesday, June 10.

Prior to the coming of the bears in the first week of March, the NSE capitalisation had appreciated by N2.42 trillion or 23.7 per cent from N10.18 trillion in January to N12.6 trillion.

After a successful 2007 with a growth of 74.5 per cent, the market continued on the positive trend and peaked with a growth of 23.7 per cent on March 5, 2008. About 53 per cent of the gains recorded by the NSE capitalisation have been wiped away by the rampaging bears.

Usually at this time of the year, investors have always believed that profit taking is the cause of depression in the market wherein investors seek to recoup returns on their investment via dividend payment from companies listed on the exchange.

However, events in the market shows that rather than profit taking, delay in the release of the budget and stoppage of the margin account as alleged against the Central Bank of Nigeria (CBN) are what are causing the market to decline on all indices.

Managing Director, Financial Derivatives, Mr. Bismarck Rewane, believes that the market is just undergoing correction since it has been grossly overvalued.

“What is happening is like a mini-correction. This should be expected because the market has been grossly overvalued and this is a big problem for people that have borrowed money to buy shares.

“The bears will continue till June. This is when we can expect to see recovery. The market will continue to look for the fair price and will then begin to climb naturally and slowly. But this does not in anyway depict that the market will crash,” he assured investors.

Managing Director, Economic Associates, Dr. Ayo Teriba, however, explained that investors might have switched from the capital market to the money market because of the rise in interest rate of the government securities.

An example of government securities are Treasury Bills (TBs), which are investment windows through which the Central Bank of Nigeria (CBN) controls the amount of liquidity in the system by selling bills to banks, discount houses and the investing public.

It is through this investment that the Federal Government borrows indirectly from banks, thereby mopping their excess funds.

With the income on TBs stable at about 10 per cent since last February and inflation at six per cent, Teriba said it make more sense to invest in TBs and earn a risk-free return of four per cent than to invest in capital market, which is uncertain.

While investors are still counting their losses the exchange this Monday came out with an attempt to stop the further decline by the market when it allegedly stop the printing of losers table for public consumption.

But this has been denied by the NSE through its principal manager on media matters, Mr. Sola Oni: “Every market has his own circle and during bearish trend, what people should find out is what are the likely causes of this bearish trend. Most of the companies that are under going bearish trend are blue chips, the fundamentals are right, the management have no problem, the company have been giving fantastic results, people have enjoyed bonus,” Oni said.

He noted that if the prices were now going down, it boiled down to the fact that people were realising more profit from the companies, adding that once the fundamentals were strong, that was a big signal “because from the way the market operates when bearish trend begins like this, it will get to a level that strategic investors, institutional investors and high net worth investors would cash in on the market and things will start improving” he added.

Nigerian Tribune gathered that the Nigerian Stock Exchange (NSE) had taken steps considered by market analysts as developmental intervention as the market in the past few weeks had moved southwards and some stocks reached new 52-weeks low.

Remarkably, some institutional and individual investors have shown a thorough understanding of the market, based in part on their deployment of shrewd analytical interpretation of market sentiments, technical analysis and fundamental.

Investment experts in this school of thought reason that all these could have been in combination of luck, access to information and fortunate timing, which are considered to be part of the analysis needed to engage the market.

Meanwhile, in the quest to help provide some clarity to these issues at stake and provide investors with a roadmap to engage the market, Proshare Nigeria Limited, the managers of Nigerians Online Investment Information Community has invited Chukwumah Biosah, Chief Executive Officer, InvestIQ to present his analysis.

According to Proshare, Biosah of InvestIQ (USA), its technical analyst partner would present his findings via a case study approach and demonstrate the validity of the approach and strategy used to play the market.—

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