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Retail investors’ participation in the Nigerian equity market has been on a downward trend, which has been a source of concern to stakeholders. UTHMAN SALAMI writes about the strategies required to reverse the trend.
The 2005 bank recapitalisation, which propelled many commercial lenders to list on the Nigerian capital market, catalysed a boom in the local equity market. Consequently, many retail investors thronged the market to take advantage of the elevated growth.
However, the 2007-2008 market burst, which stemmed from the global financial crisis during that period saw many retail investors have their fingers burnt. A lot of them lost their investments with the market crash.
Subsequently, retail investors have developed apathy and lost confidence in the Nigerian equity market. Since the 2007-2008 burst, they have decided to take the back bench in the local bourse.
Data obtained from the Nigerian Exchange showed that institutional investors outperformed by 58 per cent in February 2023. While institutional investors had 79 per cent of the total domestic investment of N134.5bn during this period, retail investors had just 21 per cent.
In December, retail investors had a 28 per cent share of the N90.21bn domestic investment in the local equity market in December 2022.
The NGX domestic and foreign portfolio investment for January stated, “A comparison of domestic transactions in the current and prior month (January 2023) revealed that retail transactions decreased by 2.44 per cent from N35.66billion in January to N34.79billion in February 2023.”
Worried by the drop in retail investor participation in the market, the Nigerian Exchange has taken different steps to reverse the downward trend.
The Chief Executive Officer of the NGX, Temi Popoola, during a roundtable discussion themed “Creating the Enabling Ecosystem for Accessing Capital from the Nigerian Capital Market” said one of such many strategies designed to woo more of these individuals to the Nigerian Stock was through technology.
He said that financial literacy and inclusion remain at the front burner for stakeholders in the capital market, noting that the exchange had made it a priority to contribute its quota toward the achievement of key targets of Nigeria’s National Financial Inclusion Strategy through initiatives that encourage the wider investing public to develop investment habits.
“To drive listings, we are taking a closer look at our rules to see areas of amendments to ensure companies raise capital more efficiently whilst protecting the investing public. NGX is also working with several stakeholders to ensure that the time to market and the costs for listing are optimized,” he added.
Even though the Nigerian Exchange Limited has intensified efforts to ensure that more retail investors are brought into the system, The PUNCH learnt that such efforts were not enough to shore up the dwindling numbers.
Speaking with The Punch, the Head of Capital Markets at Spektra, Ayotunde Alabi, said there was a need for the NGX to “humanities” its process.
“The kind of retail investors that we have now is the millennial. They are those who can invest from a retail standpoint. The initial participants are those above 50 years, who will naturally be advised by portfolio managers to de-risk from equities because they are approaching ages that their portfolio contributions are not supposed to be heavy, unlike the millennial that has robust wallets and can take the risk.
“For instance, there is no Flutterwave, Multichoice, Netflix, no cheaper cash, and other different fintech that are already doing well such as Opay and Moneypoint. There was no Shoprite before they left, and other big tech companies that the millennial can relate with.
“There are other instruments that are returning a value that will not allow you to lose your funds for example, the interest environment is climbing higher at the moment. Treasury bill at 14 per cent and then a stock that will even be mapped down when they give you dividends. In the Nigerian market, the upside is not always great for the equity market.”
Also, the Managing Director/Chief Business Officer, Optimus by Afrinvest, Ayodeji Ebo, said investors were also being affected by other intervening variables, noting that the “fixed income and other alternatives are also impacting the ways retail investors participate in the market.”
Similarly, the Group Managing Director of Afrinvest, Ike Chioke, said “Retail investors are faced with inflationary pressure caused by domestic factors and the exchange rate effect coming from the macro issues facing the Nigerian economy. And that is also part of what is declining the appetite.
“It gets even more difficult to pick the right stock and do well. Even in this kind of difficult environment, there are still some good stocks that have returned more than 80 per cent this year. With inflation and naira devaluation, you are much better off avoiding them. In combination with Airtel, Fidelity Bank, and even MTN, you know some have done well.”
The National Coordinator of Independent Shareholders, Tony Omodola, said the purchasing power determines the participation of retail investors.
He said, “If the investors are rich, there is a tendency that the market will be buoyant and people will invest well. But when the purchasing power is low, they can only invest with what they have and take care of their domestic needs. It will affect the market. It will affect the economy and we want the government to try to reflate the economy.”
The cumbersome process in dividend payment has also been dissuading retail investors from participating in the capital market.
The Head of Capital Markets at Spektra said, “The dividend payment is not automatic. You have to take forms to the different registrars. The requirement and delay involved in opening your account with the registrar, which is supposed to be the clearing system for retail investors.
“There are some stocks that you will naturally expect to be in the market but are not. The crop investors that we have now do not invest only because of the fundamentals. They are looking at the stocks they can easily relate with. That is why you will see investors try as much as they can to ANP&B or Uber rather than invest in Okomo oil or Beta Glass.”
Market analysts further explained that as sell-offs become rampant in the stock market, the retail investors should be the livewire of the Nigerian Exchange, if the necessary structure is put in place.
Lately, the NGX has taken steps to attract retail investors to the local bourse. It organised a webinar in 2022, themed “Sukuk and Green Bonds: More than Just Investing”, to encourage youths to participate in the market. The NGX also launched an enhanced version of X-Mobile, which the Chief Executive Officer, Temi Popoola said: “would enable capital market players and potential investors to have requisite resources to engage more with the market.”
According to the exchange, the App which was first introduced in 2019 is designed to provide “market participants, especially retail investors, with convenient, faster and real-time access to information about NGX, its listed securities, and Trading License Holders”.
Ebo asserted that the regulators, especially the NGX needed to “intensify efforts; people need to understand how the market works and where the opportunities are. If they do not understand, once they put in money and lose, they would not come back to the market. They need to have that long perspective of the market.”
On the issues of trust, Omodola said the investors’ confidence must be built by the NGX and others, stressing that the collaborative response of the authority was to be able to know whether the strategies were efficient.
Also, Alabi explained that the regulator needed to intensify the efforts to bring in companies that people could relate with, especially the youth.
He said, “They should get more companies that are doing well into the market by projecting the advantages. They should also try to make the process of getting dividends and return on investment and others less rigid.”
Meanwhile, the Chief Economist of the Securities and Exchange Commission, Ikey Umeano, told The PUNCH that the commission was doing all it could to bring back more retail investors.
He said, “Attracting retail investors, is one of the areas of focus for us. We have in the past few years been working to bring them in. One of the most important demographics we want to bring is young people because we see that the average investor in the capital market is greying. We want to bring in young people. Young people want fast means of entering the market.
“One of the things we are doing is encouraging capital market operators to develop new ways of onboarding people, new ways of trading, and new ways of carrying out transactions in the market. We are also developing new products. You can see that we have launched our rules on digital assets. If you look at the capital market Master Plan we just launched, there are derivatives there.”
As they strive to bring back retail investors to the equity market, SEC and NGX need to also address the issues of transparency, price manipulation, inadequate disclosure of companies, insider trading, fear of takeovers and mergers of quoted companies and others, which are some of the reasons retail investors have stayed aloof from the market.
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