Where have all the brave investors gone?. It appears the incessant decline of stock prices and the NSE index have left a lot of investors holding empty bags as they watch their dreams of better tomorrow evaporate before their eyes. I remember a little over 12 months ago when I received a call from a jubilant investor extolling how his investment in Costain Nigeria Plc was about to turn him into a billionaire. He noted that the stock which he bought at N13 during the private offering was now at N80, and he proclaimed that he was now a billionaire. He was beginning to dream about buying a land in the choice area of Ikoyi for N250 million and building his dream home. One thing he forgot was that you never count your chicks until they are hatched especially when the “chicken” is the stock market. Like I always advice investors, the stock market profits are what we call “unrealized profits” in Accounting. In layman’s terms they are not truly yours until you sell your stock. This investor’s jubilation soon turned into anguish as he watched his unrealized profit evaporate as the stock price of Costain tumbled from N80.00k to under N30.00k. As the stock price tumbled, the investor raced to sell, but was unable to because of the dreaded familiar story of “your certificate” is not out yet. Eventually, the investor was able to sell, but at a price which was too low for him to realize his dreams of owning a home in Ikoyi. I believe a lot of NSE investors can relate to this story because they have lived it or they know a friend or family member who has been in the same situation.

When analysts talk about the losses in the Nigerian capital markets, the NSE stock index is used as a general barometer. However, a closer look at individual stocks will indicate a far greater horror. Just viewing the declining capital market from the NSE index alone might not show the true magnitude of investors’ nightmarish ride.  For example on April 8, 2009, the NSE index close of 19,980.79 represents a slight recovery from 19,803, the most recent 3 year low. This translates into a decline of 46,391 or 69.90% and approximately a N7.5 trillion or 63.6% loss in combined market capitalization.

Costain Nigeria Plc stock price of N4.60k at the close of the NSE on April 8, 2009 represents a decline of N81.77k, or 94.7% from its 52 week high of N86.38k and N8.39k or 64.54% from its December 2007 public offer price of N13.00k. The decline in price from its 52 week high and public offer price represents losses of N7.7 billion and N75.2 billion respectively in market capitalization to Costain and its shareholders.
 

Furthermore, the April 8, 2009 close of N83.51k of African Petroleum plc (AP) stock price represents a decline of N217.4K, or 72.3% from its 52 week high of N300.98k and N166.49k or 66.5% from its August 2008 public offer price of N250.00k. The decline in price from its 52 week high and public offer price represents a loss of N171.5 billion and N131.3 billion respectively in market capitalization for AP and its shareholders. However, the current closing price of N83.51k is a reprieve when compared to N48.91k, the recent 52 week low on March 24, 2008. It is pertinent to note that the Management of AP has blamed the recent precipitous decline in the stock price on manipulations by Nova Finance and Alhaji Dangote. However, regardless of the cause of the decline, it is still a loss to shareholders.

 WAPCO stock price of N17k at the April 8, 2009 close is down N68.46k, or 80.1% from its 2008 high of N85.46k represents a loss of N205 billion to WAPCO and its shareholders.

Conclusion
Therefore, comparing the decline in the NSE index to the individual stocks highlighted above, shows that some of these stocks have performed far worse than the NSE index. It is amazing that with all these losses experienced by Nigerian investors (most of the large foreign hedge funds saw it coming and exited the market), it is shocking that the Federal Government and the market regulators have not implemented any effective action or strategy to turn the fortunes of the Nigerian Stock Market around.  

Although the NSE and SEC have periodically implemented measures, I believe none has been effective in stooping the continued erosion of individual stocks and investors confidence.  In recent newspaper articles it was noted that The Securities and Exchange Commission (SEC) mentioned that tax rates on investments in the capital market need to be reviewed downward by the necessary authorities to douse the tension arising from the global financial meltdown and restore investors’ confidence in the market. Additionally, it was mentioned that in a roundtable meeting, The Director-General, Mr. Musa Al-Faki, said that investors in the NSE are still charged a 10 per cent withholding tax fee on dividends they receive on their investments irrespective of how much the dividend is. Mr. Al-Faki emphasized the need to consider the role of tax incentives in reviving the capital market and ensuring its sustainable growth as well as a tax regime that would encourage sustained investments in the capital market.

I give the Director General kudos for his suggestion, but removing the tax on dividends will not make much of an impact. However I believe that the number of people who invest in the market for dividends is minimal. Young people invest for capital appreciation (growth in price of equity) because they want a quick turnaround.  Our parents and grandparents invested for dividends-not modern investors.  The 10%  tax only impacts dividend paid to investors, which most investors do not wait for. They would rather sell to lock in profits from the price appreciation than wait for dividends which in most cases are less than N1.00k per share.  The regulatory authorities should look at all upfront transaction costs. The brokerage firms should be willing to make slight concessions in their fees also, although some brokerage firms are already doing it privately for some high net worth clients.