Chris Ugwu in this write-up examines how market forces helped to keep afloat the capital market during the recent nationwide strike over fuel subsidy removal.?
Although profitable transactions pervaded the stock market activities during the one week nationwide strike action embarked by the Nigerian labour union and the coalition of civil society to protest the removal of fuel subsidy, the volume of trading was low.
As market performance indices closed the week in upward trends amid skeletal trading activities through the use of remote trading facility of the Nigerian Stock Exchange (NSE) witnessed on the local bourse during the period, market analysts believed that behind the mask of positive outlook, all was not well as some forces were instrumental to the development.
The capital market was not isolated from the crisis as transactions volume remained on the decline despite the pendulum movement performances of the corporate performance indicators.
The transactions volume, which hitherto traded about a billion shares daily in the equities’ sub-sector, accounted for less than a billion shares at the end of the strike.
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MARKET DRIVEN BY INFORMATION
Just as the market is driven by information, transactions on the floor of the Nigerian Stock Exchange (NSE) cumulatively began the year on a rather sluggish note, as the news of fuel subsidy removal started to take its toll on the market resulting to a dip in market performance indices at the close of trading during the first trading week of the year that opened for four days as Monday, January 1, was declared public holiday to celebrate the New Year.
Most investors who were earlier eager to approach the stock market in the year, appear to be staying back to watch as event in the market unfold following the new policy of the government.
Trading trend on the securities market coupled with investors’ agitation at the last quarter of last year, was on the positive trajectory, owning to permutation by experts that the market would reverberate in the New Year.
However, the number of investors to approach the market, the volume and numbers of deals expected to soar at beginning of the first trading day in the year was put in abyss as the subsidy removal took the nation by surprise.
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FORCES THAT SUSTAIN THE MARKET
Speaking on the state of the market during strike action, the Managing Director, Crane Securities Limited, Mr. Mike Eze, attributed the positive posture of the market to market forces.
“Fortunately for the market, the strike had a positive impact in that the market as index was constantly going up for the majority of the days that the labour was on strike, with exception of two days.
“The major reason why the index went up was purely based on market forces. The supply of shares to the market was low mainly because most traders did not have access to the trading floor and then investors and shareholders were very apprehensive during that period.
“Again ,? and most importantly, a lot of shares were piled up at the registrars end of the chain either because some of them that were verified could not reach the CSCS because of the strike which was as a result of low turnover rate on the part of staff of so many of these organisations who have private cars but could not fuel them, and those who did not have cars, could not get to work because of unavailability of? transport.
“So all these resulted in a few shares exchanging hands at the stock market, hence the demand was higher than the supply, and prices keep going up, though the volume was low,” he said.
Eze expressed optimism that though there was an apprehension over the negative impact of the removal of the fuel subsidy, investment in the capital market, in 2012 would be better going by some reforms currently on to shore up confidence and restore the market to its past glory as the centre for capital formation.
?“People are going to hold back their funds because of the uncertainty, but when the coast is? clear, there will be a rush in the market that will reinforce the performance indices,” he said.
In addition,some analysts also believed that the local bourse leveraged on the closure of interbank market as investors in the quest to maximise profit and minimise loss, naturally, shifted.
While trading at the stock market could go on via the remote trading platform of the NSE, the money market was completely shutdown as a result of the industrial action.