$20 billion remittances from the diaspora can boost capital market liquidity

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Although the Nigerian capital market is one of the most traded capital markets in Africa, it has, however, experienced increased volatility and insufficient liquidity, which has triggered a persistent decline in the stock market.

This challenge of insufficient liquidity has had a negative impact on market performance and has explained why some prospect-laden companies like Flutterwave are partly avoiding Nigeria Exchange Limited.

king of investors had earlier reported that Flutterwave is about to go public on the Nasdaq through an initial public offering (IPO).

Since the global financial crisis of 2008, some stocks listed on the Nigeria Exchange Limited (NGX) have underperformed. Much of the problem has been attributed to illiquidity and low investor confidence.

The development continued to fuel the persistent fall in listed company stock prices, with several blue-chip stocks hitting a 10-year low.

A seven-year review of bank stocks shows Unity Bank Plc shares, which stood at N2.29 kobo in 2015, fell to 43 kobo at the close of a trade on Friday, losing more than 80% in valuation .

Similarly, Union Bank Plc also lost 35.5% over the same period to close at 5.60 kobo.

In the consumer goods sub-sector, PZ Cussons Plc lost 60.72% during the period from 29.18 kobN to 8.20 kobN, while Honeywell fell to 2.53 kobo N against 3.72 kobo N.

Nevertheless, it should be noted that some companies have performed surprisingly well on the NGX over the past seven years. For example, FUGAZ (First bank, GTB, UBA, Access and Zenith Bank) all experienced increased growth. For example, the share price of Zenith Bank which was trading at N14.76 in December 2017 is now trading at N21.50.

Either way, experts have suggested that regulators should revise their strategy and reposition the capital market to take advantage of the windfall in remittances to boost the economy.

Nigeria leads Sub-Saharan Africa (SSA) in remittances with $20 billion in 2021. This performance represents a remarkable improvement from the $17.21 billion recorded in 2020. If mechanisms Investment-friendly and security policies are put in place on the Nigeria Exchange Limited, it could attract remittances from the Diaspora.

According to Paul Uzom, head of equity trading at Planet Capital, “if dollar-denominated equities or fixed income securities are introduced to the market, it will attract diaspora funds to the capital market. Most of the Diaspora investors are only interested in Eurobonds because of a lack of confidence in the local currency”.

Naira has been on a steady decline over the past few years. In 2015, the Nigerian naira traded on average between 197 naira and 1 dollar. It is however trading at an average of N425 today.

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