A fresh but curious reason emerged on Friday on why the Nigerian Stock Market crashed. The Director-General, Nigerian Stock Exchange, Prof. Ndi Okereke-Onyiuke, atributed the crash essentially to the exposure of many Nigerian investors to international news channels and the Internet.
Okereke-Onyiuke, who also described the NSE as the second best in the world, mentioned the Cable News Network, the Consumer News and Business Channel (CNBC) and Bloomberg as such news channels.
She explained that Nigerians who had access to the Internet and watched the effects of the global financial meltdown in the developed economies via those news channels she listed, panicked and subsequently dumped their shares.
Okereke-Onyiuke said these at the capital market stakeholders’ luncheon for the 2009 convention of Association of Nigerian Physicians in America in Abuja on Friday.
According to her, unlike what transpired in the developed economies, the fundamentals of companies quoted in the NSE were strong and the companies were still operating, declaring profits and paying dividends.
She said, “Why our market went down was not because the fundamentals were not there. It was because Nigerians are now exposed to CNN, the Internet, CNBC, Bloomberg and as they watched, they panicked.
“They watched what was happening in the rest of the world and they panicked and started dumping shares.
“Our own market is different. In the United States where it (meltdown) started, the companies got broke and were liquidated. They filed for bankruptcy and the managers were removed.
“In our own case, the companies are very much there, the managers are there and the fundamentals of the quoted companies are still strong and solid; no factory got burnt and no manager got removed and none of them is bankrupt.
“What is wrong with our market is not the global meltdown. It is ‘global panic’ and we are trying very hard now to rebuild the confidence of investors to come back into the market.”
Okereke-Onyuike, however, explained that the value of the stocks had maintained a steady path to recovery, adding that they were not likely to jump to where they were before.
“It will rebound slowly because it also went down slowly,” she said.
The DG further stated that at the peak of the global financial meltdown, the NSE lost about 40 per cent of its value as the total market capitalisation declined from N12tn in 2008 to N7.14tn in March this year.
She, however, explained that many of the investors that suffered losses only lost in terms of value. Their holdings are still intact.
“What you have lost is the value of the stocks temporarily because the companies are still there making money. The stock market is a cycle. If the market builds up again, you will be able to sell if you want to or keep it for your retirement.
“It must be stated that even most of those who lost had earlier made huge profits in form of capital appreciation, dividend and bonuses and built houses.
“People forgot that they have already received appreciation, dividend and bonuses and that percentage they have is what lost value.
“As investors’ confidence begins to rise, our market capitalisation is equally rising. It appreciated from N7.14tn to N9.45tn between April and May this year.
“Today, it is hovering above N8tn as many of our customers are taking profit regularly following market dynamism. Our market is resilient. We did not apply any stimulus.”
Okereke-Onyiuke also noted that the crash of stock prices presented an opportunity to investors.
She said, “The market is rebounding so this is the best time to buy. You can mop up a lot of shares and get on the board of some companies whose shares are low at the moment. “If you look at history, the trend, this is the first time in the history of the NSE that the stocks are down. It is cyclical market.”
But despite the crash in the price of stocks in the Nigerian market, Okereke-Onyiuke insisted that the NSE was currently the second best exchange in the world.
According to her, “We are in the top five in the world. We have climbed to number two this year because a lot of the developed markets have not started rebounding. The ratings are done every six months.
“Until the market downturn, we had always out-performed many developed markets in the area of Return on Investment in US dollar terms as adjudged by the International Finance Corporation and Standard and Poor’s, an international rating agency. Our market will soon sustain this high performance.”
Some experts, however, disagreed with Okereke-Onyiuke on the reasons for the crash of the stock market.
The Managing Director, Financial Derivatives Company Limited, Mr. Bismark Rewane, said on Sunday that the stock market crash was as a result of a gross over-valuation of the market.
He said, “The market was over-valued and it was corrected. A correction is natural. I do not believe that the Director-General of the NSE made that comment, because it is not a valid statement.”
Rewane, however, advised that the focus now should not be on what caused the market crash but on restoring confidence in the market.
“We should find ways of restoring confidence in the market rather than blaming people.” he said.
The Managing Director, Value Fronteria, Dr. Martin Oluba, who expressed shock at the DG’s comments wondered if Nigerians should be shut out from the rest of the world.
He said the statement was faulty and blamed the crash on monetary easing by the Central Bank of Nigeria.
Oluba explained that the action by the CBN allowed banks to create credit without close monitoring; the freezing of offshore credit lines to Nigerian banks, after the exposure of international banks to toxic assets; and the poor leadership of the capital market regulators.
He said, “There is no correlation between people watching CNN and the market crash; part of the problem was the leadership of the Securities and Exchange Commission and the NSE that could not coordinate operations to restore confidence in the market when the situation was unfolding.”
His counterpart in Partnership Investment Limited and a member of the NSE council, Mr. Victor Ogiemwonyi, said, “There is no point going back to why the downturn happened. We should be looking forward. What caused it is not important.”
Many reasons had been adduced for the stock market crash but some international financial institutions had warned in March 2008 that the market was overtraded and highly leveraged and that a correction was inevitable.
By December 2008, the market had lost about half of its value mainly due to the recall of margin loans by banks, which were dumping shares to recover loans.
In February this year, Okereke-Onyiuke announced that seven executive officers and herself were stepping down.
She said they had agreed to voluntary retire from service in order to inject new blood into the management of the troubled market, whose woes had worsened with the global economic meltdown.
She said the retirements would take effect once the NSE’s demutualisation exercise was completed.
Under the demutualisation programme, the NSE will become a public limited company and be listed on the floor, which will allow interested investors to buy its shares.
“The director-general will become the CEO/Group Managing Director and everybody will be benefiting from bonuses, dividend and also price appreciation,” she said.
Investors have lost over N8tn within the last 15 months due to the persistent bear market. The market capitalisation of the NSE had dropped from an all-time high of N12.6tn in mid- March 2008 to N5.42tn as at last Friday.
In his speech at the launcheon on Friday, the Chief Executive Officer, Afrinvest, Mr. Godwin Obaseki, advised investors to exploit the crash in the price of stocks to average down the price of their existing portfolio.
He said, “For those who already invested in the market, do not panic. It is time to stay in there. It is time to average the cost of your portfolio down.
“If you bought stocks at high prices, this is the time to go back and get them at lower prices and average the overall price down because the fundamentals of these companies are still strong.”