The exit of international investors in Nigeria’s capital market has been of great concern to Nigerians as the market continues to nosedive in recent times. In this interview with our correspondent, Ololade Julianah, the Managing Director, CSL Stockbrokers Ltd, Mr. Gboyega Balogun, speaks on the International investors exit from the capital market and the effect on FG 2016 budget. Excerpts;
As one of the leading Institutional and corporate brokerage service providers in the country, how can you describe activities in 2015, relating to the capital market and outlook for 2016?
The second half of last year was faced with dwindling global oil prices and the risk of currency devaluation. Both factors affected the capital markets negatively especially when you consider that the major drivers of our capital markets are international investors.
We have seen the capital market depreciating drastically and the Index closing down at 17.4 per cent. It has negative implications with the value of shares traded on the NSE almost down by 30 per cent in 2015. Naturally, this has an effect on brokerage commissions.
In addition to that and from ours and many of the larger broker’s perspective, almost 70 per cent of our activities were that of international investors coming to Nigeria. They are the most sensitive to currency devaluation and they have spoken with their feet which involves a sell-off. All these have been challenging for the industry.
What has the response from your clients been like in 2016?
Our own clients at CSL stockbrokers are not ready to buy anything in Nigeria until the currency is devalued.
If there is devaluation, we will see the foreign investors come back to the capital market. Currently, they don’t agree with the FG macro economy policies. From their perspective, foreign investors want to see a credible, macro economy blueprints.
CSL Stockbrokers and NSE are targeting retail investors with mobile apps portal. What has been the level of investors’ acceptance?
The acceptance of local investor’s is light. Mobile application and online portal are geared particularly towards retail investors and retail investors’ activities are even lighter. From a medium to long term perspective, we are strong advocates of mobile applications and online trading portals but in the short term, the activities on both sides are still low.
We need to create more awareness of our offering and there are still a few tweaks we need to make with our own mobile and online solutions. Once that is done, we will conduct a proper launch. At that point, we will create more awareness.
Due to the announcement of decline in FCMB Q3 2015 earnings, the group share price has dropped. What do you see to investors’ sentiment?
It is nothing peculiar to FCMB Group but all listed share prices are down. I think FCMB group’s share has been proactive in issuing a profit warning. I suspect given the macro economic conditions we face; there would be more provisions in the industry.
Are we expecting another bubble in 2016?
From the International perspective which is where we have buyers from, it is about the currency volatility. If Central Bank of Nigeria (CBN) doesn’t devalue the Naira, foreign investors will continue to exit because as it is now, it is not sustainable.
Reserve is fallen to $28 billion, some argue it is lower, and I think the import bill is about $3-$4 billion per month. It means we have 7 months import in our reserve, however if the figure is nearer $20bn we start to hit critical stage which I believe is three months cover. The only way we can reduce demand for dollar is by devaluing it. If you want to sustain your reserve, it means CBN has to devalue.
Are you saying uncertainty is surrounding the N1.8 trillion FG 2016 borrowing?
It will be a challenge for foreign investors to key in if they are not in support of the macroeconomic policies of FG. As of today, they are not in support of the macroeconomic policies of the government.
If there is devaluation in the policy, not just devaluation but that’s the key focus, that will create confidence. But as at today, it will make no sense for somebody to invest in Nigeria when they know that the country could devalue and are uncertain of the magnitude of the devaluation. They are still thinking of devaluation.
If I am to look at it from the stock market perspective, would you as an investor put money in a stock in Nigeria that is valued at $1.00 today when you know in two weekstime, it is going to be valued at $0.50 or worse? For foreign investors, it makes sense that the sooner you devalue, the quicker foreign investors will come in.
Aside devaluation, in what way do you expect the 2016 budget to have impact on the capital market?
The 2016 budget is all about full implementation in order for it to have a positive impact on the capital market and economy at large. But FG has to fund it. There is a funding gap and they need international investors to support. If the international investors don’t support it, it will be a difficult task for the FG. The budget is very sound and logical but the big issue is funding.
CSL Stockbrokers over the year has joined the big league in volumes traded on the equities market. What is the drive behind this?
A number of years ago, we decided to go after International investors. It has been very successful because what we offer to a lot of these investors is the best of both worlds.
On the one hand, we have a local presence but on the other hand through our international offices, we offer them International best practice when they come to us. International investors are able to get local perspective as to what is going on in the capital markets. It is something our international peers cannot offer whilst feeling safe in the fact that their counterparts are regulated by the same regulators they have become accustomed to.
Information is key and to invest in the Nigeria’s capital market, you cannot do this remotely, You must have a deep insight of what is really going on, which is where we come in for our international clients who are sitting overseas.
We have been able to develop that relationship with international investors and that is what differentiates us from the pack.
What is CSL Stockbrokers doing to drive domestic investors since their exit in 2008?
We are institutional brokers. We look primarily at your Pension funds, Asset managers and HNI/Family Offices.
Those are our primary focus. In terms of retail investors, particularly in periods of depressed activities and price volatility, we prioritise on the following two options for our clients. One is going through mutual funds, of First City Asset Management, which is a far safer option in times of price volatility. Furthermore, cost of execution is cheaper and there is an inherent ability to diversify one’s investment. Second is one line real time solution, which takes away the human interface and allows clients access to all the necessary data to make informed investment decisions. Our core business however is institutional investors. We are a corporate and institutional brokerage organisation.
How can the capital market support the nation’s GDP?
For the capital market to support the country’s Gross Domestic Product (GDP), we need conducive environment for sectors within the Nigeria to list on the NSE.
Right now, the full spectrums of the sector are not represented in the capital market. We don’t have the telecommunications, full complement of upstream Oil & Gas, Power and industries companies listed on the Stock Exchange. When there is a better implementation in the economy, we will feel the required impact of the capital market on the nation’s GDP.
As of now, few companies would want to be listed due to decline in prices of listed companies. I think there is need for more conducive environment, cost of listing must be reduced and macro economy environment must be conducive for investment.
Are you not worried with the fall of shares in the capital market?
Everybody should be worried. We brokers should be more worried because we are going to feel the full effect of it. But I think all these things have a cycle; they will come and go. The reality is that Nigeria is too big an economy to be ignored by FPIs. It is during these quiet times you consolidate on your relationship with these clients whilst at the same time think outside the box to generate incremental revenues.
It is important to note that so long as you can find the other side of the trade, and there is always the other side if the price is right, as a stockbroker whether a foreigner is buying or selling, we will still make our brokerage commission. They may leave now but they will be back.
We must note that there are different types of investors. If I am an investor with 5-year investment horizon or I have a strategic interest in a business, I will put my money in the capital market right now because valuations are compelling. There is still going to be more volatility over the next six to twelve months. As such if you are a short term investor, you cannot stand the volatility; the stock market will be a very tough proposition.
Nigeria is very well endowed with the people and natural resource. The rational for not devaluing or limiting the supply of dollar is to limit the importation of inflation and force import substitution to allow industries develop locally. There are many sectors FG can develop. Unfortunately, we are not quite there yet to pursue full import substitution and there will be the inevitable demand for imports to cover the gap. Government is looking into it but we’ll see how far it will go.