Poor regulation and others affects NGX full recovery 15 years after

Poor regulation, harsh economy and other perennial challenges bedeviling the capital market have constantly continued to hurt retail investors’ participation in equities 15 years after the global financial meltdown even as the market continues to lose an average of N2 billion to the segment’s apathy daily.

The losses are calculated based on the sector’s contributions to daily market trading before the crisis and current percentage.

Already, operators are worried that the drop in retail investors’ activities, which had constituted a large chunk of the total transactions, would further depress the equities market. This is because retail investors dominated the equities market after the indigenisation exercise of the 1970s up till the year 2000, contributing almost 70 per cent to volume.

However, the upsurge in foreign portfolio investment from 2000 to 2007 watered down their contributions to about 40 per cent. Regrettably, the segment’s contribution to the equities market currently is less than 10 per cent.

Consequently, the All-Share Index (ASI), which grew steadily to the highest point of 66,000 points receded, shedding more than 70 per cent of its value between 2008 and 2022.

Considering the gap created by foreign investors’ exit from the market, which has remained largely unfilled and continued to suppress transaction volume, the operators urged the government to create appropriate measures to restore their confidence.

Vice President of Highcap Securities Limited, David Adonri, said if retail investors’ participation in the market increased to 40 per cent as recorded before the global financial crisis, their daily contribution to the market would be more than N1 billion, considering the average daily value of equities transactions of N2.5 billion.

Adonri argued that, hitherto, Nigerian retail investors had an affinity for equities as very few of them understand debt instruments.

He pointed out that the segment of investors was the driving force of the equities market for several years as a result of their concentration until the global meltdown.

According to him, while retail investors dominated the equities market, their financial contributions to the equities market were very significant, causing their aggregate investment sentiments to direct the movement of the market, just as their steady investment stabilises the market and enhances liquidity.

In addition, he affirmed that retail investors’ transactions stemmed from the volatility of the market, contributing immensely to the success of public offerings, thereby keeping the primary market activity and making the capital market attractive to issuers during the period.

Adonri argued that despite the perceived confidence-boosting changes that have occurred in the market, retail investors are not likely to return if the market is not profitable.

According to him, the profitability of equities stems from appropriate monetary policies that give higher yields to equities over debt and foreign exchange.