Monday, June 06, 2005

THE PROPOSED FUTURES MARKET BY NSE

The activities in the stock market these days call for concern. Since the beginning of the year, there had been a bearish situation whereby the both the volume and the index have been on the decline. Most of the very active blue chips have not been showing impressive performance in the market. Those that have been keeping the spirit normal have only been frog jumping from one day to the other. Most investors, particularly the speculators, have been hoping upon hope for a good deal, while brokers tried to keep the spirit alive.

At several for a, the Director-General of the Nigerian Stock Exchange, Dr Mrs Ndi Okereke-Onyiuke has had to explain that no matter the situation, the stock exchange is still the most reliable form of investment. She claimed that the current lull in the market is temporary. By the third quarter of the year when the banking consolidation (Soludo solution) exercises are been concluded, the market will bounce back. The DG is of the view that the property market is falling and cannot be compared with the stock market. As to investors confidence, the NSE is one of the best rated stocks in the world.

The dealers are of the same view with the DG of NSE. Some believe a lot of investors are divesting from other areas so as to participate in the solution solution. The non implementation of the budget is also claimed to be one of the reasons why the are activities are slow and down. Some more experienced brokers are out with a lot of prediction as to some all-weather stocks which will always be gladiating.

While these views and optimism may be acceptable, the DG of NSE and the dealers and brokers are yet to tell the innocent and ignorant public why:

  • there is dearth of active stocks in the market because only the banking, petroleum and food sectors are active.
  • less than 10% of the listed securities are active
  • Bonds are not traded
  • the yester-years blue chips are down and almost out (CAP, Dunlop, WAPCO, etc.)
  • the second tier market is almost dead
  • the South African Supersport listed on the exchange is begging for de-listing
  • the insider dealing of the stockbrokers is still very much prevalent
  • no visible efforts to restore life to dying or stagnant sectors.
  • no oil producing company is listed.
  • non of the many privatised enterprises has been listed
  • no foreign company is actively traded on the exchange

The capital market will start to witness new development in the market with the intended introduction of derivatives. The Dennis Odife panel on capital market restructuring brought about multiple stock exchanges in apparent reference to South Africa and some other countries. In his report which was adopted with some possible hidden agenda brought about the establishment of Abuja Stock Exchange as aparrallel stock exchange. Unfortunately, Abuja Stock Exchange has turned out to be still birth not withstanding the change in its destiny to commodities market.

I beleive the proposed NSE derivative market will not suffer the same as the Abuja Stock Exchange in the sense the current stock market is suffering from paucity of instrument. Only a handfull number of equities are available. Once you remove Guinness, Ashaka, Total, Nestle, Mobil, Flour mill, Okomu, Texaco, Unilever, Union Bank and First Bank, the exchange is out recognition. What is the fate of the proposed derivative market? Instead of venturing into that market all in the name of development, why not tarry until the existing market if fully alive? What efforts are there to suggest there will be no abuse? Are we sure there are sufficient regulations to curb irregularities? Must we embark on this market now that the economy is still highly fragile and undeveloped?

I am not a prophet of doom, but we must realise that the economy is drowning, the country is suffering from integrity crises. The Securities and Exchange Commision is currently bed-ridden. The law enforcement agents are better called law endangered agents for nigerian police are more of ciminals than protectors. The ICPC is a dog without teeth while the EFCC is still strugling for survival. The law-makers are gradually sliding to law-crushers while the government appears helpless except self imposing outward shows.

This is why I beleive the craze for the introduction of the derivative market should be done with caution otherwise the innocent investing public will pay for it. The NSE need to do a lot of sensitisation to arouse the dying market. Let us know why less than 10% (about 30) out of over 300 hundred stocks are actively traded. Let us look before we leap.

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