Nigeria’s financial markets posted healthy gains last year, but five years after the global financial meltdown, local investors are still wary of sinking their money into stocks.
The market capitalization of the nearly 200 companies listed on the Nigeria Stock Exchange (NSE) rose by 41 percent in the 12 months to Dec. 31 last year to about 13 trillion naira (US$58 billion), while the All-Share Index on West Africa’s leading bourse closed up nearly one-third over the year to end at 41,329.19 points.
The figures indicated that the market appears to have rebounded well from the global crisis, which saw approximately 8 trillion naira wiped off the value of stocks. Industry operators say the market has been buoyed by foreign investors looking for bargains.
“Foreigners made our capital market their investment destination, as a lot of shares were selling far below their par value following the 2008 financial crash,” broker Mukaila Alogba told reporters.
Investments from offshore accounted for about 60 percent of total transactions in the stock market last year, he added.
Also, the World Bank’s International Finance Corp (IFC), which backs private enterprise, floated 12 billion naira in bonds to lure investors into Nigeria’s nascent capital markets, he said.
“The IFC also approached the [Nigerian] Securities and Exchange Commission for a naira-dominated medium-term notes program of US$1 billion,” Alogba said.
A US$1.5 billion African Development Bank facility for projects by telecoms firm MTN Nigeria Communications Ltd was also driving the market, he added.
Yet despite the more optimistic outlook — including for the Nigerian economy as a whole — Nigerians remain wary of sinking their cash into equities.
“Local investors cannot forget in a hurry [the] irrational manipulation of share prices which stock brokerage firms, in connivance with banks, engaged in to cause the market crash,” one stock analyst said.
Lagos businessman Soji Fadairo would rather forget what happened five years ago.
“Each time I tried not to remember, my memory keeps recalling how I lost my entire savings to [the] stock market crisis,” he said. “Overnight, my entire investment running to several millions of naira evaporated like air.”
Fadairo’s experience forced him to sell property in the upscale Ikeja neighborhood of Nigeria’s financial hub to offset a 5 million naira bank loan.
“I will never put my money on stocks again. Experience — they say — is the best teacher,” he said.
Funke Bello, a 45-year-old civil servant, also lost out, but has now dumped stocks for bricks and mortar to assure her long-term financial future.
“I used to be active on market with thousands of stocks in blue-chip companies. I was making a lot of money in terms of capital gains until the crisis,” she said.
The losses Bello suffered forced her to withdraw her son from his school overseas.
“I will not venture into stocks again. I am now into properties business. If you buy a house or a plot of land today and decide to sell it tomorrow, it will be at a good margin,” she said.
One senior manager at the NSE said that the future looked brighter for the market on the back of strong economic indicators for the country as a whole.
The economy is predicted to grow at a rate of 7 percent this year, the naira is stable against the US dollar, inflation is at a manageable 7.9 percent and interest rates are favorable for both savings and investment.
“A lot has changed since the global recession,” said the official, who requested anonymity. “Investors are also enjoying high returns on investment due to impressive performances of quoted companies.”
He urged reluctant investors to take advantage of the gains and pointed to new regulations designed to protect investors.
“We are poised to promote good corporate governance, as well as prevent inside dealings and abuse in the market,” the official added.
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