Some wonders are currently being performed on the Nigerian Stock Market, so the blood flow might be halted for a while, please read this before you take action! So you know the right time to exit. Particularly for speculators.
MARKET UPDATE- EMERGENCY GOVERNMENT INTERVENTION TO BOLSTER THE STOCK MARKET
At the meeting which the Federal Government, the CBN, SEC, NSE and bankers organized in order to restore investor confidence in the nation’s capital market, the following new proposals were agreed namely:
1. Share Price Limits: Daily price fall limited to 1%; Maximum price rise still 5%
Implication: Prices will fall at a slower rate now than before when stock prices could fall by a maximum of 5% in a day. Thus, a stock would have to fall by 5% over a week to have the same effect as before when a stock could fall by as much as 5% in a single trading day. In other words, a stock will have to fall by as much as 1% per day over 5 trading days before it can have the same effect as the previous rule whereby stocks could fall by as much as 5% in a single trading day. Hence, this new rule will bolster the value of share prices on the NSE, prevent severe share price and market declines.
2. Margin Facilities: All margin facilities with banks to be restructured for longer repayment period in order to prevent forced selling by banks which is the current cause of the downward slide in the market.
Implication: The banks are required not to carry out forced selling of margin portfolios. However, the banks will work out a repayment arrangement with the client in order to salvage the client’s portfolio from market losses if this proposal is adhered to by the bank, the existing forced sale driving the fall in share prices will cease,leading to a rebound in the stock market.
3. Share Buy-Back: Quoted companies will be allowed to buy back up to 20% of their stock.
Implication: Outstanding shares of quoted companies will reduce, leading to reduction in the supply of shares and upward movement in share prices.
4. Liquidity: CBN has started taking measures to improve the liquidity situation in the economy.
Implication: The improvement of the liquidity position in the economy will be a catalyst to drive business revenue and an expansion in the national economy. The release of N1.2 Trillion (US$10.2 billion) will exert pressure on interest rates, as
interest rates are bound to move lower thereby causing the cost of borrowing to be cheaper. With cheaper cost of funds, trading volumes on the capital market are bound to increase as money market yields become lower in comparison to stock market yields.
5. Transaction Fees: NSE, SEC and all capital market operators have all agreed to reduce their fees.
Implication: The reduction in transaction fees will drive more volume on the NSE which will inevitably lead to share prices moving upwards.
6. Government Intervention Fund: The Federal Government will set up an Intervention Fund to strategically intervene in the capital market when panics and crashes occur during times of crisis.
Implication: The market will rebound once the FG Intervention Fund is used to purchase a large amount of stocks in the stock market. The fund will also help restore investor confidence.
7. Market-Making: Rules on market-making to be rolled out; and modalities to be worked out with banks to fund market-makers
Implication: Market makers will be required to take up excess supply of stock in the market and they will also supply stocks during times of scarcity. The effect of this new proposal is that price equilibrium and stability will be created and investor confidence will be restored in such equities held by investors.
8. Curbing New Listings: The NSE and SEC to curb new listings on the stock market until the market stabilizes.
Implication: The liquidity squeeze in the market will stall as private placements and new offers will be kept on hold until the market has recovered and investor confidence has been restored, thereby preventing capital flight from the secondary market to the primary market for new listings. Thus, share prices will move upwardly rather than downwards as a result of this proposal.
In summary, net effect of the proposal is that market may rebound soon.
…..I wonder y it took then so long to really intervene… It’s a welcome input though and hope it eventually ease off tension and confusion in the market.
me i no know oh, make the thing improve first.
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Thanks for analysing the new policies on how to revive the capital market. However, I think NSE till need to deduce the volume trade of 100,000 to formal 15,000. Also, for those of us that are indebitness to our stockbroking firms and being charged 35% interest will benefit from that to be enjoyed by those that borrowed from banks?
This is a joke.
Hmmm…….I hope somebody has thot over these mitigation interventions properly. They seem like short term approaches to long time issues.
Anyway, who am I to complain. Once the market goes northwards, d key word is “mum” until these guys bring out some other crazy rules.
wont have minded tho if the post was titled “THRILLER”. lol……..
Hmmmmmm…….. i hope the government and their policies will stay consistent, at least there is a positive action taken, somehow it looks a bit comprehensive, may they be true to their words. Anyway thanks for the update Deolu, it is comforting.
I commend this initiative to prevent further mayhem in the Stock Market such that there will be renewed confidence and consequently a fresh influx of participants.The Federal Government was right on target as it couldd not have intervened at a more appropriate time.One only hope that steps are taken to ensure compliance.Deolu,I commend your thorough analysis as it is obvious that you carried out a comprehensive research and even consulted the experts.Well done!
Thanks for the analysis.
That would be welcome but with the policy vacilations of this administration, i wonder if they would back thier words with meaningful actions.
Lets keep our fingers crossed.
i agree with bussee, this post would have been tagged thriller… but yes very detailed analysis and i hope these measures are applied to the book and the effect bolsters the market.
well good analyses i will say but my question is, is this intervention necessary to gain back investor’s conffidence or the market was just trying to correct itself with so many stocks not selling an dtheir intrisic value?
this is a very detailed analysis, and no i would have put it better, i know this measures will work because Nigerians are very serious when it comes to things like this a no one will gain from the down ward movement of stocks. Instead they will do every thing to achieve this goal
Well this is what we’ve been waiting for, and what responsible govts the world over does when there is crisis.
Remember the Northern Rock crises in the UK last year and the Credit crunch that has been plaging the west for about a year now, and remember the stinulus packages – yes call it temporary measures but, it has fulfilled it’s intended goals. There are different approaches to challenges and you’ve got to profer but the immediate and long term solutions to them.
I think taking these measures is a step in the right direction, this is an example of one of the few times our policy makers have responded to challenges in a sensible way. One should just hope that our policy makers become more pro-active by being more of preventive than curative.