Stocks Nigeria
Stocks Nigeria
Nigeria: Behind The Curve
October 6th 2008
Foreign investors withdrawing money from the Nigeria stock market to meet margin calls at home.
Charles Malize
The hemorrhaging in the global financial sector is augmenting exceedingly fast, with the emerging frontier operator, Nigeria no exception.
Nigeria’s economy has benefited from foreign investment from South Africa, the Middle East, Asia, Europe and the United States. These investors have been ardent to deposit money into Nigeria’s equity and bond markets.
As of late, Hedge Funds and international portfolio managers have become more risk averse. Faced with tightening credit lines, they have commenced withdrawal of funds from their African investments to meet margin calls at home, making the emerging market frontiers more vulnerable as access to capital in the international markets becomes more challenging.
This is expected to hurt some of the Nigeria’s commercial banks that have embarked on a considerable growth strategy by increasing their risk assets. They are likely to stumble upon extreme challenges as they try to access capital in the international markets to feed their ambitious appetite for some large deals.
The dislocation in money and credit markets has been intensifying in recent months and this has the potential to severely impair credit availability for consumers and businesses alike. These pressures are the result of the ongoing deleveraging in the global financial system as corporations losses mount.
Although Central Bank of Nigeria and the Bankers Committee are in denial, there are speculations that some of these commercial banks are already having liquidity issues following mass exodus of fund withdrawal from foreign investors.
Not more than a year ago, the Nigerian Stock Exchange was running at full speed and as of recent has seen latest gains eroded by current global financial crisis.
The panic;The disappearing of double digit return on ones investment and the inability of local investors to borrow money from the banks to plough into the stock market is dissipating very fast. Also you have the swift abating, of the haste in the arrival of foreign investors in the Nigerian capital market to reap the unbelievable return they couldn’t otherwise get back home.
All these unfolding before their eyes as ignorance on the probability of the market been dragged to its knees open up.
The Nigeria stock market is no longer the type of haven for the investment banking industry it once was due to the current worldwide financial fix. The outlook for the global banking sector remains depressing with unyielding liquidity, market volatility, uncertainty and lack of confidence all creating fear and panic.
Nigeria’s financial institutions have accessed these markets and are facing the same margin calls. This current meltdown is demoralizing for all sectors. A good number of Nigeria banks are already exposed to this comprehensive financial crisis. They have their little tentacles spread to foreign markets.
With access to funds in foreign capital markets shot for now and commercial paper continues to seize up, this is expected to create more havoc going forward. (Commercial paper is used by corporations to borrow in the credit market, and when institutions can’t use this paper to access capital it creates panic).
At present foreign banks are not lending to each other let alone outsiders. This will not front well for the Nigerian capital market as liquidity issues become negatively impacted. This has gone beyond the subprime crisis and has become more of a liquidity concern.
With the financial system in panic mode, a run on banks could lead to a more systemic meltdown in this sector, resulting in the financial capital market life being handed to it on a plate.
With Nigeria’s gross domestic production on the downturn, unemployment on the rise, contraction in production, rising inflation, recent drop in oil prices coupled with global recession should have investors anxious.
Another major impasse facing some of the Nigerian banks is transparency and asset valuations. With fundamentals out of whack, investors are widely demanding transparency and “mark to market” on company’s assets that reflect reality. Not getting it; they will have a run on the institution.
With the hedge fund model looking broken by the day, and redemptions on the rise, my take is more run on the capital markets both home and abroad expected.
Central Bank of Nigeria and the Nigerian Securities Exchange Commission should position the necessary apparatus in place that should enable them “stay ahead of the curve“. Ascertain transparency on the financial institutions balance sheet, identifying those with clogged toxic assets, weed them out and protect depositors and investors in the process. This should restore confidence. When you have bank managers and their second ranks not understanding the framework of their business model and their operations, it is worrisome.
The Nigerian stock exchange is already down thirty percent this year.These are difficult times. Nigerian Capital Market needs to learn, what got it into the current predicament and implement the necessary tools to absolve the problem moving forward.
Contact: info@cmcapitalmarketresearch.com
www.cmcapitalmarketresearch.com
How can I buy shares in America Stock market while I am in Nigeria?
self
hope ur asking d question in a wrong place
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