Mr Sam Onukwue, a Fellow of Chartered Institute of Stockbrokers (CIS), is the Chairman, Association of Securities Dealing Houses of Nigeria (ASHON). He spoke with Sanjo Adedeji on development issues in the Capital Market and justified the need for the new administration to leverage the services of Stockbrokers for accelerated economic.
Q: What is your professional advice to investors at this period of uncertainty ?
Uncertainty and volatility are parts of stock market dynamics. They must be factored into risk analysis. As some investors are apprehensive about how the market shall respond to the current political atmosphere, smart ones are already taking position. There can never be a perfect period for investment. It is about taking a sound investment decision This is why we have always advocated that investors should utilise the services of Stockbrokers, also known as securities dealers.
Q: Why are you encouraging investors to take position at the moment?
Regardless of the state of uncertainties in the global financial markets, investors that take sound investment advice have opportunities for superior return on investment on constant basis. Many investors often lose huge amount of money by relying on their own intuition or consulting unqualified investment advisers. Investment in any asset class requires a lot of variables, including an investor’s investment objective, risk tolerance, sources of funds and time horizon, among others.
Investment is a trade-off of risk and return, whereby an investor aspires to post highest return at lowest risk. This is achievable if proper analysis is done by certified investment advisers. Our Association, Association of Securities Dealing Houses of Nigeria (ASHON), shall continue to engage investors on the need to work closely with stockbrokers for timely investment advice.
Q: What about the risk elements?
We are not saying that there are no risks. Even asset classes that are believed to be risk-free contend with inflation risk, exchange rate risk and a host of others. What we are saying is that risk can be mitigated to ensure superior returns. In every risky situation, there are opportunities. The same applies to investment. It is all about understanding and deploying appropriate investment strategy. It’s not a game of one-size-fits all. Contacting a professional investment adviser is in itself a risk aversion measure. Investment professionals’ profile their clients as a precondition for advice on the appropriate investment opportunities.
Q: What is the nexus between the Capital Market and the economy?
The capital market, especially, the stock market, is the barometer for that gauges the economy. Its array of statistics show the direction of an economy. This is why it is often said that there is linear relationship between the development of a capital market and the economy. The capital market provides a platform for government to mobilise long term funds to finance infrastructure. Companies utilise the market to raise funds for series of projects while retail and institutional investors need the market for capital formation and other benefits. Studies have shown that there is correlation between the development of an economy and its capital market. One of the most visible professionals in the capital market is the stockbroker.
These are agents of financial intermediation in the process of mobilising fund from the surplus economic unit to the deficit one. They are highly skilled, coming from diverse professional backgrounds. Stockbrokers are needed at Monetary Policy Committee (MPC) of the Central Bank to explain the implications of any monetary decision of the apex bank on the capital market. The new administration requires Stockbrokers at all levels to drive the economy and increase government’s utilisation of the capital market, Currently, most decisions of the apex bank are skewed in favour of the money market, the short term end of the financial market. This should not be so as the financial market has the long term arm which is the capital market.
Q: In specific terms, how can the government fund infrastructure through the capital market?
The government at all tiers should take advantage of the market to float fixed income securities to fund infrastructure projects. The continuous over subscription of SUKKUK Bonds signifies investors appetite for safety of their capital in a recessionary period.
Q: How would you describe the relationship between the government and the Stockbrokers?
It can be better. Stockbrokers operate from two professional platforms, the individuals and corporate entity. Every stockbroker is certified by the Chartered Institute of Stockbrokers (CIS) while at corporate level, we have the Association of Securities Dealing Houses of Nigeria (ASHON) of which I am the Chairman. ASHON is a registered Trade Group by the Securities and Exchange Commission (SEC). Market development is at the core of ASHON’s and CIS’ activities. Each group provides blueprints to the government annually on how it can utilise the market to grow the economy. The challenge is the failure of the government to utilise our inputs. Worse still, the Federal Government does not take inputs from the market operators on any capital market policy whereas the operators are the bridge between the Government and investors. This is one area that the incoming administration should exploit. The capital market has absorptive capacity to fund most of the infrastructure and this will reduce the government’s penchant for controversial borrowing. Government’s utilisation of the market is a win-win affair as more securities will be listed to deepen the secondary markets.
Q: After the swearing-in of the new administration, which policy would you advocate for immediate reversal to send positive signal to the capital market?
Capital Gain Tax (CGT) should be abolished. The 10 per cent tax on capita gains is a major disincentive to institutional investors. The tax is out of tune with the global standard whereby every market is reducing transaction cost. As stockbrokers, we had made our position known to the government but nothing really has been done. The CGT represents an increase in the cost of transactions which will encroach on returns on investment. Its retention will definitely lead to diversion of resources from the capital market to the money market, especially, that the nominal anchor, Monetary Policy Rate (MPR) is currently is rising.
Q: What short term measure can the new administration adopt to address the controversial issue of CGT?
There can be an extension of waiver on implementation of CGT to reduce transaction cost and attract all cadres of investors into the market. This is consistent with the need for the government to implement market-friendly policies to encourage more companies to seek quotation on the securities markets. I believe that rather than stifling the market with the re-introduction of CGT, government should implement policies that will reverse the waning interest of foreign portfolio investors and their counterparts that are willing to access the Nigerian market through Foreign Direct Investments (FDI) by creating a tax-friendly environment. As a result of unfriendly investment environment, FDIs in our market has continued to dip.
Q: Recently, you beat the closing gong on NGX in what market watchers described as symbolic. Can you give an insight?
The event marked the celebration of ASHON for its contribution to market development by NGX. It also covered the full opening of our trading floor, For us as stockbrokers, the floor of the exchange holds historical and professional significance. Our profession, which historically commenced as a floor-based business, is an offshoot of the Buttonwood Agreement. The Agreement was written and signed by 24 stockbrokers and merchants in 1792 in New York City and this created the first official mutualised stock exchange. It was an agreement to trade with one another and represent public interest. This marked the beginning of the New York Stock Exchange. However, developments in Technology has altered the way of doing business in the securities market and NGX has admirably kept up with global best practices. Our market commenced operations with the manual trading system, called The Call-Over System or Open Outcry which means stockbrokers could only execute transactions on the trading floors and therefore required the physical presence of brokers. Floor-based trading has multiple effects especially in the areas of enabling stockbrokers exchange professional ideas, providing enhanced practical professional training for young brokers as well as deepening the professional knowledge of stockbrokers generally. The floor became our second office and a platform for instilling appropriate ethical values. There was never a dull moment as stockbrokers got to know themselves and developed lasting relationships on and off the floor. They were able to interact at different levels of activities with The Exchange as members of one large family. This helped to build confidence not only among brokers but in the Capital market itself.
Q: But remote trading has been in vogue at The Exchange for a while…
Yes. As a responsive market, The Exchange commenced the Central Securities Clearing System (CSCS) in 1997 and advanced to the Automated Trading System (ATS) in 1999. It is equally important to state that ATS was the enabling platform that ushered in the era of remote trading, following the introduction of the Order Management System. It was encouraging to see many dealing members key into it. This ushered in a dual trading method whereby a stockbroker could elect to trade on the floor or remotely. However, in 2020, COVID-19 forced every dealing-member firm to trade remotely. Today, we appreciate God for the opportunity for us to return to the floor. With our return to the floor, the tempo of activities in such areas as Facts Behind the Figures, Factory Visit, Closing Gong events by important visitors and CEOs of Quoted Companies, all of which provide decision support insights for brokers will gain new momentum. It will also rekindle the grossly eroded nuances and ethos of our profession, especially among the trainees (Oles) and those who qualified since the floor was shut down. They have not had the opportunity to take part in these rarefied activities. It will also go a long way in consolidating those traits that have characterised our noble profession – collaboration, respect for one another, and leveraging on the collective knowledge of the market.
Q: Why is it that New York Stock Exchange retains the trading floor despite its high level of technology?
There is no gainsaying that the trading floor is the temple of capitalism which provides opportunities to dissect economic and social events, assessing their impact on prices of traded securities as well as simplifying complex policy pronouncements. It is against this background that the New York Stock Exchange and some others still retain their trading floors for traders to conduct some of their trades.
Much as the power of technology, especially in our business cannot be downplayed, the trading floor remains an important and unifying platform in our profession, and we should take advantage of this reopening for informed price discovery, free consultancy among stockbrokers and increased volume of trade. As critical stakeholders in the market, our members remain committed to the growth and development of the market. We shall continue to engage with NGX and other market regulators for accelerated market development.
Q: What should be the preoccupation of ASHON in the rapidly changing dynamics in the market?
ASHON has always been at the forefront of ensuring that its members operate professionally while the Association collaborates with the capital market regulators, operators and other members in the ecosystem. ASHON shall continue to play pivotal roles in policies that positively impact the capital market. We were at the forefront of banks’ recapitalisation and demutualsation of The Exchange among others.