CBN FX Policies Are Depressing The Stock Market – Expert

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Tajudeen Olayinka is an expert in financial engineering, investment banking and stock markets. He is also the Executive Director of Wyoming Capital and Partners.

In this interview with Nairametrics, he discusses the issues troubling the Nigerian capital market and other challenges in the nation’s economy.

Enjoy the conversation.

NAIRAMETRICS: How would you assess the performance of the Nigerian economy since the beginning of the year?

Tajudeen Olayinka: The Nigerian economy has not performed well since the beginning of 2022, and this has been to the discontent of most economic agents. If we evaluate it based on four key parameters, the result is negative.

From an output growth standpoint, slow GDP growth, averaging around 3% since the start of the year, is no big deal, as an economy facing serious challenges and far from full employment should not be doing anything. single digit growth rate. This is the reason why a large part of the population remains mired in absolute poverty, as more and more people are left without a job.

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From the point of view of price stability, we have seen the worst inflationary pressure in recent years, and this is not a coincidence, as the current administration of President Muhammadu Buhari has not been able to stem the tide of rising inflation since that arrived in charge in 2015.

From the point of view of unemployment, it is also the worst in recent history, judging by the most recent official statistics. And when we consider the external sector, the result is negative, since CBN’s exchange rate policy has not helped to create a desirable external balance. So from these four parameters, the economy has not been doing well.

NAIRAMETRICS: What is your opinion about the investment outlook in the country?

Tajudeen Olayinka: I don’t need to write a new story on the investment landscape. We have seen how investors have had to change the price of securities in all markets and instruments, including bank loans and advances on a constant basis of late.

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This does not bode well for a struggling economy like ours, as it is also responsible for the rising cost of capital in the economy, making it increasingly difficult for real sector companies to raise money at a lower cost of capital. bass. This could threaten the economy’s ability to increase the level of capital formation.

NAIRAMETRICS: What are the challenges facing investment banking and stock brokerage in Nigeria?

Tajudeen Olayinka: The challenges facing investment banking institutions and brokerage firms are no different than those facing other businesses when an economy is challenged in the ways we have witnessed in recent years.

We have seen so much market pressure in the area of ​​transaction taxes because the government now depends on market operators to generate revenue and finance the fiscal deficit. This is disrupting the market. Another thing to consider is the state of the market itself.

The market has not fully emerged from the 2008/2009 global financial crisis as investor confidence remains shaky. That’s why public companies, especially those listed on the NGX Exchange, are finding it increasingly difficult to raise equity capital to finance growth.

The recent government sequestration of unclaimed dividends and the recently reintroduced capital gains tax are other issues of concern for market traders and investors.

NAIRAMETRICS: What are some of the prospects for fund management in an emerging economy like Nigeria?

Tajudeen Olayinka: The outlook for fund management in Nigeria is quite high as it offers an additional opportunity to cater to the interest of retail investors and high net worth individuals who are not as savvy in the technicalities of managing profitable portfolios.

It’s an important area that the Securities and Exchange Commission (SEC) has continued to pursue vigorously. More brokerage firms now have asset management companies as active subsidiaries.

NAIRAMETRICS: Most portfolio managers don’t look at retail investors, but instead target the high net worth investors they structure. What plans does your organization have to encourage retail investors when it comes to mutual funds?

Tajudeen Olayinka: We do not engage in retail business or clear asset management. What we do is a partnership across the marketplace that serves the long-term interests of the marketplace and clientele. We are more dedicated to personalized research and advisory services. Our association works.

NAIRAMETRICS: What factors do you think could cause investors to come to the market or stay in the market?

Tajudeen Olayinka: What will keep investors in the market is the implementation of market-friendly policies that reduce volatility and encourage investment. This means that the government and regulators must be on the move.

NAIRAMETRICS: What is your opinion on the investment landscape in the country in the midst of the preparation for the 2023 elections and the interest rate increases?

Tajudeen Olayinka: The 2023 election is not a real issue for the market or investment in Nigeria because the frontline candidates in the presidential election are market focused and therefore should be a boost to investor confidence. The biggest challenge is the economy, especially in CBN’s response to rising inflation and fiscal mismanagement.

The last three interest rate hikes by CBN have caused major market disruption as it is responsible for protracted repricing of securities across all markets and instruments, including bank loans and advances . This is the true problem.

NAIRAMETRICS: Do you think that the overseas listing that some companies are doing has a direct impact on the Nigerian economy?

Tajudeen Olayinka: Yes, it should have a direct impact on the economy if we have more public companies in good financial standing adopt cross-border listing. What it means is that they can raise foreign currency capital off the coast of the Nigerian market.

It is also a way to internationalize the domestic capital market, since more securities can get adequate prices in two or more markets. This will allow them to contribute to the development of the economy.

NAIRAMETRICS: What are the challenges people face getting dividends and why are unclaimed dividends still high?

Tajudeen Olayinka: Most of the challenges are man-made, and with the adoption of e-dividend, it becomes easier for investors to get their dividends early enough to reinvest them in the market or elsewhere.

Another problem is that of non-resident investors who did not update their accounts before moving abroad. But in time, we will overcome the problem of unclaimed dividends. I think the SEC is working hard to try to minimize the problems related to unclaimed dividends.

NAIRAMETRICS: What is your opinion on the state of imbalance in the foreign exchange market?

Tajudeen Olayinka: CBN has not adopted a flexible exchange rate system, as we still have a long list of items on the official list of foreign exchange restrictions. This is the reason for the unbalanced state in the forex market and has kept the Nigerian capital market in a very dismal state as foreign portfolio investors who are not comfortable with the exchange rate regime are discouraged. current to bring in new money to participate in the market.

NAIRAMETRICS: In year-on-year terms, the headline inflation rate accelerated to 21.09% in October. What are your projections for the end of the year and what do you think the authorities will do to achieve its reduction?

Tajudeen Olayinka: Headline inflation of 21.09% in October is a clear indication that CBN’s demand-side management tools are starting to seep into supply-side problems, further exacerbating the already poor market situation. supply side.

Multiple MPR hikes have further reinforced cost inflation. This is the reason why the inflation number increases year by year but slows down month by month. It also explains why it can be difficult to control inflation, which is largely driven by supply-side factors, using demand-side management tools.

I think we may continue to see rising inflation for the rest of the year until CBN’s currency redesign program starts to affect holders of illegal money (money in the wrong hands). That is partly the essence of that program.

NAIRAMETRICS: How do you think the current Buhari administration will help revive the nation’s financial market, especially on the issue of identity management and other economic drivers?

Tajudeen Olayinka: I think the current administration has done something commendable in the area of ​​minimizing the recurring incidence of identity theft, although it has not yet been eliminated.

It is also important that market operators understand the need to know their clients or clients, improving in KYC. There are too many dubious people who want to steal from the market, using a false identity. Little by little, we will get over it.

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