Reversing the Stock Market’s Losses

Damilola Oyedele writes on a two-day hearing by the House of Representatives Committee on Capital Market & Institutions aimed at exploring modalities to reverse the losses made in the stock market and address the issue of unclaimed dividends

Nigeria, several years back enjoyed a vibrant and buoyant capital market contributing a significant quota to national economy.  Between 2005 and 2007, Nigeria’s stock market was considered the most performing in Africa, with what many considered an abnormal price increase. However, stocks prices started to plummet since he global financial crash of 2008. Since that time, the  capital markets seem  to have resisted several efforts made to turn it around. The market dipped by  16.1 per cent in 2014, and shed  17. 4 per cent in  2015.   It has lost over 13 per cent so far this year.

The development  informed the decision of the House of Representatives Committee on Capital Market & Institutions, headed by Hon. Tajudeen Yusuf, to meet with relevant stakeholders at a two-day public hearing to stem the  downward trend. The hearing was  been prompted by two motions passed by the lawmakers: “Downward Trend of the Nigerian  Stock Market” and “Urgent Need to Address the Vexatious Issue of Unclaimed Dividend Fund and it’s Effect on the capital Market.”

Some of the critical stakeholders at the hearing included the Central Bank of Nigeria (CBN), the Securities and Exchange Commission (SEC), Independent Shareholders Association of Nigeria, Institute of Capital Market Registrars, and the Renaissance Shareholders’ Association.

An ailing capital market
At the opening of the hearing, the Speaker of the House, Hon. Yakubu Dogara blamed the downward trend in the market on slide in crude oil prices, a crucial commodity responsible for 75 per cent of national exports and about 90 per cent of foreign exchange receipts.

Other factors identified by the speaker, who was represented by the Minority Whip, Hon. Onyema Chukwuma are: “delinquent assets of commercial banks, eclipse in manufacturing and industrial production,  poor financial from quoted companies, systemic pull back on foreign direct investments and global economic recession”
Speaking at the  hearing,  President of the Renaissance Shareholders Association, Olufemi Timothy said retail investors turned the stock market into a gambling arena buoyed on by manipulations by operators.

He accused operators of deviating from the principles of what a stock market is: a market meant for long term investments, raising long term capital and receiving long term dividends through accrued investment benefits.
Operators,  Olufemi added, also failed to mind companies’  performance to determine stock prices, rather they resorted to manipulation of prices to keep clients.

“The increase in the stock market prices without corresponding performance of the company led to continued depreciation downward trend of stock prices  and loss of confidence by genuine investors. Many operators and clients became rich overnight, while regulators were accused of looking the other way, until genuine investor confidence was destroyed,” he said.
Other speakers at the hearing blamed insider abuse/trading, as many listed companies have operators on their boards of directors.

Unclaimed Dividends
Speaking on the issue of unclaimed dividends,  Dongara noted that it  has also constantly generated controversy,   adding that there has been conflicting figures on the actual volume.
While SEC has initiated an e-dividend mechanism to solve the issue of the dividend fund, and the CBN has relevant department to and units to handle the matter, questions remain as to their effectiveness. This is particularly in the face of alleged fraudulent activities of some registrars.

Several posers were raised at the hearing: Are there necessary punitive measures for such Registrars? How can commercial banks be stopped from frustrating shareholders in accessing their dividend fund? How can the CBN through its financial service regulatory coordinating committee effectively and efficiently regulate the financial system? Are the Nigerian Stock Exchange and Central Securities & Clearing Systems doing great what is necessary to protect shareholders dividend funds ?

Some of factors blamed for unclaimed dividends said to be N80 billion include ignorance of shareholders,  poor postal service, insistence of banks on current account for dividend cheques, and holding small number of shares, resulting in negligible dividend.

However, Dr. David Ogogo of ICMR, listed some of the initiatives of that SEC in collaboration with other market stakeholders, have put in place to tackle the issue of unclaimed dividends.  These, he said, include the  recent launch of e-Dividends Mandate Management System  (e-DMMS) platform into which all shareholders stock account details with be uploaded.

“Subsequently,  all dividends are to electronically credited to the accounts of investors,”  Ogogo said.
According to him,  a massive public enlightenment  has been embarked on,  and informed  investors to take advantage of the e-DMMS platform.
“All registrars have been  directed to return 90 per cent of unclaimed dividends 15 months old and over to the respective companies that declared and paid such dividends. All registrars have accordingly complied,” he said.

Way forward
As the Chairman of the Committee,   Yusuf, had earlier noted, the forum was meant to explore suggestions on how to move the sub sector forward. Most of the stakeholders therefore called on the National Assembly to improve regulations in the sector, particularly to ensure that operators are barred from being investors.
The legislators was urged to strictly enforce market principles and nature of determining stock market trends through companies financial fundamentals, forecast or warning profits instead of speculations.

The CBN was advised to establish an intervention fund up to the tune of N200 billion, which can be used to shore up the stock market when necessary. This is currently being done in China where the state backed margin finance firm has supported fund managers and stock firms.
The Independent Shareholders Association of Nigeria proposed the establishment of a trust fund  for unclaimed dividends.