Abel Ezekiel, an investment and portfolio analyst, in this interview with EHIME ALEX, explains why the Nigerian capital market has been reacting negatively since the beginning of the year and some infractions the regulatory body must bring under control now that the market has been demutualised
The market capitalisation closed in the red in the first quarter of 2021. What do you think is responsible?
The capital market has a lot of forces pushing it back. In the first quarter, most of the companies declared their corporate earnings. I don’t think the market responded favourably to the earnings. Before then, the market had rallied. As always, investors will look at when the earnings were released and whether their expectations were met and if it was worth the price. Then, the market will start correcting itself. This is a factor, meaning that before the earnings were released, the market had anticipated. So, when the earnings come, investors will weigh it whether the earnings released were justified. One of the companies that affected the performance of the market was Access Bank. So, when dividends are declared, the market will look at whether the earnings were worth it. As a result, the market would start having a downward movement. What I am saying, in essence, is that before the release of their full year earnings, the market had appreciated. But when the earnings came, it did not meet investor expectations.
Again, towards the first quarter, fixed income market’s income started doing better. As a result, investors started to move some of their portfolios from the stock market to the bond market. Definitely, in bond, you are sure of your capital and the yields.
Another factor I see is the general state of the economy. If you look at the general nature of the economy, inflation is very high – now at 18.17 per cent. So, most of the income earners, especially household earnings, are focusing their income on day-to-day expenses, spending their money on consumables and things that would sustain their families. Thus, investment from the chunk of those households moved to feeding their families, keeping lives going, as it were. Remember, fuel price was increased, tariff on energy is about to go up and people have to service those expenses, while incomes remain static. As we speak now, the so-called minimum wage is not being met and, to an extent, has had a huge effect on disposable income, which could be used to take further opportunities in the capital market. I think these are some of the reasons the market is trending in the negative, though we have some days of sparks in between. Although, it has not been the way it is supposed to be, as bullish as it was before now.
What do you make of the dividends declared by quoted companies in their full year 2020 result, especially the Tier-1 banks?
I will say it is a mixed return. Most of the Tier-1 banks didn’t do badly. In fact, some of them did better than their 2019 performance, while some others lagged behind. Cases in point were Stanbic IBTC, Zenith Bank, Guaranty Trust Bank. Stanbic IBTC even surprised investors with a bonus of N1.06k, which has not really been seen in the market for a long time. By and large, some of the results declared by the Tier-1 banks were not a disappointing performance, though we have some exceptional performances. I didn’t expect such good performance, considering the way the year was with lockdown, low business activities and all that happened in 2020. It was not a total disappointment.
With the completion of the long-awaited demutualisation, what new possibilities would you say have opened up for investors’ community?
With the demutualisation completed, investors can now participate in the operation of the capital market. Before now, suspected cartels used to share what seems to be the return. Now, it is a fully liberalised profit-making entity. It, therefore, means that investors can benefit from any earning that comes into the purse of the Nigerian Stock Exchange. Another thing is that the NSE is owned largely by some of the stockbroking firms, and these firms can sell their holdings. So, it becomes an avenue to improve the liquidity of some of the firms. Before now, it was not possible. If you have a company and it gives you the relief to sell part of some of your holdings in a way, it improves your liquidity, because there will be income that will come into the operation of the stock broking firm.
Another thing is that it makes the operation of the NSE a bit more transparent, as before now it was operated by a cartel that arranged themselves as the owners. It was a restricted operation or opportunity to a few, now made open to many to benefit from whatever the company generates. Investors now have access to that too. So far, if you look at the performance at the NSE, it is normal anyway; after the initial rally, it dropped some points, which is normal, because people were still adopting this wait-and-see attitude. It is supposed to have been better than what we are seeing, but I know investors are still adopting a conscious approach to the whole thing.
Do you think there are infractions that the stock market regulatory body, the Security and Exchange Commission, has to look into to encourage investors?
There are still infractions and inadequacies in the market, which the regulatory bodies, especially the SEC, should look into. First is the issue of unclaimed dividends. The process of claiming them is still very untidy. During the process of filing, you hear of signature irregularities, signature defers, and all that. I have a client, as we speak now; she has not received her dividend from Access Bank. The bank said we should do the process of filing, which we did. Later they said the signature was not in their system. She has to re-sign. As we speak now, we have been in the process since January. It is taking too much of a time with the protocols and processes involved. If the SEC can work with the registrars to look for a better way of making it faster, it will encourage people. Those processes and protocols, for me, is discouraging investors, especially most Nigerians that are outside the country that have bought shares. I have a lot of them. There should be a way for those people to claim their dividends while over there.
This issue of National Identification Number is another challenge. The investor has travelled and doesn’t have NIN, and probably wants to have access to his investment. If you are not in the country, you cannot register for NIN, or you don’t have an Automated Teller Machine card, you are cut off. In fact, they can be discouraged. These are some of the challenges that I have seen. The cost transaction is also there. For instance, if you want to do a transmission of shares, the amount the registrar will charge investors or a beneficiary who is investing about N200,000 is as high as N40,000 for banker’s confirmation in Kano. Deduct that from the N200,000, then the investor could feel that it is not worth it. If the children of an investor cannot claim the father’s investment because the banker’s confirmation cost is high, then it is not worth it. Such instances give a bad impression of the market. Now, if you have a benefit and you can easily have access to the benefit, you can claim it. That will be encouraging. I bought some shares with my children’s names, they are still underage. When I went to the registrar, I wanted to claim the benefit, taking advantage of the SEC window for investors to claim the benefit, they were telling me that those children of mine must have a bank account and that it is only a bank account the benefit can be paid into and all such things. That is my personal experience. Those children are still underage, and so it made me not have access to the benefit.
The challenges in the market of having access to your beneficiary to investors, who have travelled, those whose actual investors have died, to have access to the benefit are very cumbersome. Let there be an all-encompassing approach, where a peculiar situation arises and the person has been seen and identified, should be less costly to an extent. The amount of banker’s confirmation, if it is in Ikeja, they say N20,000, from Abeokuta N30,000 from the North N50,000, just to confirm a document. This is expensive vis-à-vis the value of or worth of actual investment, discourages the beneficiary and investors. And many of them will be speaking ill of the market. I think the regulatory body should look at all these issues and make them less cumbersome for investors and beneficiaries.
What should we expect from the market this second quarter as the earnings for the first quarter trickle in?
What we will expect is a mixed bag. Some will beat expectations and some will not. If you notice, it is what has happened that assisted the market in making some green returns, instead of red. That is to say, it has allowed the market to be in bullish territory rather than be in bearish territory because now expectations are high too and some of the results that came in have not really been disappointing. But by the time we get the full picture of the result of most of the quoted companies, the market will reassess itself, whether it is actually worth it or we have had a kind of complete fortune or something that was favourable to the market or whether, to some extent, the market has over-reacted. Then, it will start to correct itself. Remember that the economy too is still in doldrums, as it were, because inflation is very disturbing, income is stagnant. People will be more preoccupied on how to fix immediate needs than invest in the capital market. In most pension organisations and insurance companies, a lot of demand will be placed on them from people that need their investment just to meet up with day-to-day activities. When you have this type of biting inflation, it puts pressure on households, companies and eventually you discover that even if the companies are doing well, there is no aptitude for investors to actually take advantage because they are occupied with how to run their day-to-day activities. So, the percentage of investable funds is not there. But definitely, it is going to be a mixed fortune for the first quarter earnings, which will frighten the market based on what I have said before.
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