The Managing Director of APT Securities and Funds Limited, Mallam Garba Kurfi, engaged the team of Business247News Online in an engaging interview at the weekend. Kurfi, a reporter’s delight any day, was in his elements as touched on many issues in the nation’s capital mark. After reading this, I believe you will most likely agree with him that you a missing a lot if you are not investing in the stock market.
Q: How has the COVID-19 pandemic affected the nation’s capital market?
A: Generally the market really surprised us because the fear of COVID-19 really beat down our market seriously. Our All-Share Index was as low as 24% despite the fact that the previous two years 2018, 2019, we closed in the negative. In 2018 we lost about 17% in 2019 we lost about 16%. So, when you add the two, you will see that we have lost over 30%. Plus the fear of the COVID that makes it 24%. When you take 24% with that 30% All-Share Index lost over 50% and that brought our shares down below the par value and they became very attractive and by the end of April, the market gained over 9% by the end of May, the market gained about 10% and today, our entire loss from 22% has been reduced to less than 6%. We are hopeful with corporate actions and the first quarter results, the market may likely go further better up. So, we are anticipating that before the end of June, the market loss will likely go much lower even full recovery is possible. The big players in the market are doing very well. For instance, Dangote Cement went down as low as N117 but is currently trading at N139 even after marking down to N16.00 dividend, it went as high as N150 and we know that it has the approval and permission of shareholders to buy back 10% of its holding, so we anticipate that, that will trigger the price to be much better. This is a stock that controls more than 25% of the market capitalisation. So, as the stock rises, the better it is for the market All-Share Index. Next to it is Boa Cement which is almost number two in terms of market capitalisation and it really surprised the market. It came with its result N1.75 compared to the 50 kobo dividend it paid in the previous year. So, this really triggered the market and the stock, as I am talking to you, is trading about N44 from its previous position of N28. That means the stock gained about N16 and that is more than 50%. It also helps the rising of All-Share Index.
The third is MTN which controls about 15% of the market capitalisation. It went as low as N92 but as of now, it is trading between N118 and N120 and this means it has gained about N26 and that gives us over 30% gain and therefore from all indications, we believe that the COVID-19 pandemic enables the telecommunications sector to earn more rather than losing because everybody is using data and everyone is using their communication channels, so we anticipate that by the time they declare their second quarter results, their prices will go up and that will also help in moving the index forward.
The other one is Nestle. This is also a big player because it has a capitalisation of one trillion Naira. Around March April the stock crashed as low as N776, today as I am talking to you, its trading at N1094, it has gained over N300 which is about 40%. So, all these big players have really helped the stabilization of the market and also bring up other players in the market which are not being patronized. I remember Zenith Bank went as low as N10. 85 kobo, today its trading around N17 that means it recovered about 50% . The same thing applies to GTB which was trading at as low as N16, now it has gone as high as N26, gaining N10 and that is more than 50%. So, generally, our market looks better because the fear of the COVID-19 gives opportunity to most of the serious investors to take position and today they stand better.
Other stocks like the Nigerian Brewery gained over 100%. It was trading at as low as N22 and by penultimate Thursday, it traded at N45.That is more than 100% rise in two months. This opportunity brings more volume of transactions. At a point, the average trading moved from 2 billion to 5 billion so the market really benefited. If you look at our volume of transaction by April, May you will see that they’ve changed and that volume keeps on increasing
The other issue is the foreign investors that were rushing to get out of the market in order to take their money and convert it and take the other opportunities that were prevailing in the developed market, but unfortunately for them, when they rushed to the market that depressed the price of the stocks and that brought the index down and having disposed most of their stocks they couldn’t get adequate foreign exchange to transfer their money back and that made some of them to start buying back and that also helped the market. Quite a number of them have gotten the dividend because our market is one of the best in the frontier market and the emerging market in terms of dividend yield. We have some stocks that have as high as 20% dividend yield. Quite a number of the blue-chip companies have 12 – 14% dividend yield, king of gain you cannot get in any other market than ours, that made the foreign investors to reinvest their dividend into the market and that also help the market rebound.
This rising and this rebounding has really brought the volatility of the market because we have seen stocks that have volatility of as much as 50% or thereabout and that makes traders to make more money. However, we believe that the impact of the COVID will be more pronounced by the time the companies declare their second quarter results because seriously, most of the companies were shut down, factories were closed, during the second quarter, particularly in the months of April and May and therefore some of them may have not fully back to full operation even in June. You will see that this quarter is the quarter that will show the real effect of the COVID on the market and therefore these are the results we are anticipating likely to come around July, August. What we are saying is yes, most of the traders are taking their profit now, but we envisage that the market may likely come a bit down by the third quarter because of effect of the results from the second quarter. However, the hope and confidence of the market is the rising price of the crude oil which is around $40 per barrel and as long as it is going like this, it will give the Federal Government a better cushion because the budget has been reduced to $28 dollars per barrel. What it means is that they are getting a cushion of about 14 dollars if this is sustainable we can assure you that the market, the economy that occurs that we may likely face recession may not be that much and that will boost our reserve, giving more confidence to the foreign investors so that those who want to get out can have enough dollar to buy and get out of the market and that will also boost the confidence of those who are outside to likely come into the market and play the market so we are saying that yes the COVID in fact will affect our market in the third quarter because of the second quarter result but at the same time, it gives us hope that the market may rebounce. So, all in all, we are envisaging that the market will still close positively because we have lost in 2018 and 2019 and this year is the year that any slight opportunity for the market, it will rebounce and will be better. So, the market is going to be better and for the traders, there is no better time than now because when there is volatility, it is the only time you make money and we have seen it, they have made a lot of money and there is more room to make more money in most of the stocks.
Q: How does the Nigerian Stock Exchange’s full transition to virtual trading affect the market?
A: Luckily, the OMS (Operation Management System) is already in place and that enables trading anywhere and what the exchange did was to invite the brokers to bring their laptops and run the same system in their laptops so most of the brokers were trading that is why I told you that the volume we traded during the lockdown is more than what we’ve been trading before because everybody is trading online and most of us that have online trading systems our clients were trading effectively and that is why most of them made money. Many of them were trading within the country some outside the country because that system that made the NSE and CSCS collaborate has really helped because I know a lot of top clients ask for opening client accounts which we are able to do and they continue trading during the lockdown. So, the technology for the Exchange is okay, it is robust enough to take care of this and therefore the COVID-19 did not become a challenge to trading except for those houses who were not on the OMS and those houses who don’t have mobile trading platform, but for most that have the trading platform have performed tremendously well. I can tell you it demonstrated that the way out of the brokers is to go for online trading and you can see that after now, a lot of stock brokers now are going the extra mile to subscribe for the online trading because the platform can accommodate all.
Q: For a long time, most of the trading on The NSE is still done by the top-ten stock broking firms, why?
A: Even from the beginning of the year, the major player is still the local investors. What pushes the foreign investors is the fear of the COVID-19. Once it was pronounced in Nigeria in February, by March, our market was completely down because they pushed to the market beyond the reasonable expectation and the pushing crashed our All-Share Index to as low as 24% . But the beauty of it is that there are also looking at opportunities and when they saw the prices are down, they started coming back. But I am telling you; even the local investors are playing well in the market. I feel COVID-19 and the low interest in the Money Market encouraged people to have no choice than to move from the money market because if you approach any bank today, they will be taking of 3 to 4 or 5% interest rate, why should you invest your money if you are to get only 3 to 4% when you can make 10% in the equities market? So, the low interest rate in the Money Market encourages more people to play in the equity market and the federal government Skuk that was launched last week, I am telling you people have been subscribing in millions. This shows Nigerians now know the time value of money because instead of keeping your money in the bank that will give you 5%, this is a bond that gives you 11.2% and pays you two times. So, many investors subscribe to it and don’t forget that the bonds were routed through the capital market because they will credit your CSCS account so that you can trade at anytime you want and to exit there is no problem. The fact that you buy it now and can sell tomorrow encourages and attracts a lot of people. Some people didn’t have CSCS account but were able to open CSCS account and subscribe. So for me, it attracts those who are not into the market to join the market but generally the low interest rate in the money market make people have no choice than to invest the capital market, You remember even the recent MPC meeting by the CBN reduced it to 12.5%, reducing it by 100 basis points and this is unusual because I remember for almost 30 months the MPR remained at 14% but you can see in January this year the MPC increased the cash reserve ratio to 27.5% by 500 basis point, now they reduced the MPR by 100 basis point, so it seems like the MPC have changed and this change is for the better of the capital market.
Q: The problem of late payment or dividend declared by many companies is a major issue investors are complaining about. How do you see this development?
A: The reason why we are having the issue is simple. There’s no punishment for not paying dividend declared by a company. If the registrar doesn’t pay your dividend for a year, two years or more, regulator will only tell the registrar pay him and that is all! But what of the time value of money? If you didn’t receive your money as and when due, you are losing. The most unfortunate thing is that you hardly see big investors suffering from unpaid dividend. Most of them who have 5%, 10%, 20% and higher stakes in companies don’t suffer from the problem unpaid dividend, they are settled immediately dividends are declared even before you and me that have small units. It should not be like that. I believe that the regulators particularly the Securities and Exchange Commission (SEC) has to come out with a template that ensures no more delay in dividend payment because if they can do that, it will promote investor confidence generally in the market and you will see more participation by retail investors because once you open an account with your BVN number with CSCS yet you cannot get alert as when your dividend is paid. This should not be allowed to continue to linger in the nation’s capital market.
The NSE and SEC have to come up with solution and make sure that this problem is no more because it affects investors’ confidence in the market and the issue of confidence is paramount and we need more participation by the local investors. Once we gain back the confidence of local investors and make more local investors patronise the market the foreign investors will not have choice they will be trouping in and our market will be better for it.
Q: How would you react to the speculation that some companies that declare these dividends, most times, don’t have the money to pay all investors immediately and the ones that have the money their registrars will want to make some gains by keeping the money in the banks and accruing interest on what they should have paid to the investors?.
A: If this is the issue, the NSE can make it clear to any company that as you declare the dividend, drop your cheque with the CSCS and the next day, the CSCS would pay everybody so you cannot declare dividend and get shareholders approval and now be selecting who to pay and who not to. I believe if the whole dividend is dropped with the CSCS the next day, everybody will get alert because it has all the bank account details of investors and there is no reason whatsoever for CSCS to say it cannot credit you after all, it is doing direct cash settlement so why can’t they pay dividends? The CSCS is the one in charge of paying coupon of the Federal Government’s bonds and we have no issues with, we hardly have any client who complains that he doesn’t receive dividend or interest. So if the CSCS can demonstrate such capability, the responsibility of dividend payments should be transferred from the Registrars to the CSCS if this will solve the problem. For those companies that declares dividends and don’t have money, SEC will know and take the necessary steps. I can tell you almost all the companies that pay dividends have their shareholders complaining of not getting their dividend. If data is synchronized between the CSCS and the registrars, then we shouldn’t be facing the challenge of delayed dividends if we still have this delay, then the problem has to do with the money being declared not adequate enough to take care of all investors at a time and in view of this, I am proposing that while the exchange insists that any company declaring dividend should drop their cheques with the CSCS and let the CSCS say they cannot pay because they have no right.
The coming of the BVN (Bank Verification Number) has been able to solve identity problem because no two persons even if they have the same name, they will not have the same BVN number and the Central Securities Clearing System (CSCS) has made it mandatory that without bank account you don’t open account for investors. Now if the CSCS has investors’ BVN numbers and the bank accounts of investors, we expect to transport the same data and the information to the registrar once we do this, the question of unpaid dividend would not continue to arise again because what matters is your name your bank account and BVN number that identifies you. So, if there is one hundred Kazeem Garba, each of them will have different BVN numbers and since you have my BVN number and have verified me as Kazeem Garba, you have no reason to delay my dividend payment.
Q: The Central Bank of Nigeria (CBN) recently deducted N1.4 trillion from the banking sector’s Cash Reserve Requirement (CRR) as most banks failed to meet the 65 per cent Loan-to-Deposit Ratio (LDR) at the end of March, 2020. Zenith Bank ranked the highest with a deduction of N355.9 billion while FBNH and UBA came second and third with N208 billion and N204 billion respectively. Stanbic IBTC came forth with N143.9 billion while Standard Chartered came fifth with N120.6 billion deductions. How do you react to this development?
A: The CBN is for the economy and it is like that the world over. Wherever you see an economy growing it is because there is borrowing and lending. You cannot borrow when you are talking about double digits interest rate and why most of our banks decided to sit on the deposit and just buy Treasury bill or federal government bond and make money rather than investing into the economy so that the economy will recover faster. What the CBN did recently by removing billion dollars from the banks for not meeting the loan deposit ratio target is very good so that it will encourage banks to look at the viable projects and start lending to them because by the time they fund these projects, you would see more activities, more production more employment and the economy will grow better and faster. So, we need economic growth that will accelerate our position so that we’ll recover faster.
Don’t forget by the end of the first quarter of 2020, our GDP growth was 1.82% and this is about 23 to 28% lower compared to our Q4 that is December, 2019 performance. Nobody wants the economy to continue going down. Now, they are even predicting that we are likely going close the year in the negative, so when the CBN insists that fund this economy, banks they know all these businesses and the private businesses always approach bank for loans so now when they know that if you don’t lend, the CBN mops that money and penalise you, they have no choice than to start lending and once they start lending, I can assure you that the economy will recover faster and better. We need it in a single digit as most of our economic sectors both the small scale and the medium scale and the large scale need money. They are lacking enough capital to move them faster and better, so if they can get it at a cheaper rate, they would do it and therefore the banks have no choice than to identify the viable projects and fund them so that the economy will be better and the issue of unemployment will become a thing of the past because when there is economic growth there will be more employment and more activities and the economy will be better.
So, for me, yes, by penalising them for this, it reduces their performance. What the CBN is telling the banks is that you can make more money by lending not only by just buying Treasury bill and bonds. If you lend your money, you are free from CBN sanctions. So, you cannot go out and source deposit which could have been invested in the economy, the owner decided to save it into the bank and the banks refuse to lend it to the borrower. So what the CBN did is right and I believe it’s for the better economy. Banks make money by lending even though we had COVID-19, manufacturing was shut down for almost two months, but the banks for the money they lent are still accruing the same interest. So, you can see, if you want to know this, borrow money from banks, you will know that you work for them more than for yourself.
Q: How is the perception of local investors to mutual funding and other investment opportunities in the capital market addition to equities? What do you think can be done to make all them attractive?
A: For the mutual fund if you look at it before the end of last year, we have hit one trillion compared to our market capitalisation of around N12 trillion. That means we’ve reached 8% this is a stage that we’ve never envisaged. More funds are coming and what I want the Exchange to do is to ensure these mutual funds have market makers so that the buyers at any given time they want to exit, they can walk into the market and exit. Once they make it like equities, I can tell you there would be more activities because the investors are wiser now. They want to be sure where they are guaranteed and don’t forget in this mutual funding some are dollar fund so that isn’t in Naira, they will edge against the inflation, edge against the devaluation and why would you invest your money and get it in the dollar form than in the mutual fund. So, the mutual funds are coming and they are coming with different products at different rates. I believe the Exchange needs to ensure that there is more trading activities in the market by liberalizing the mutual funds markets so that anywhere you can buy and sell not necessarily that you have to deal with the issuer because what hinders mutual fund is that if a mutual fund is issued by a particular house, you would have to deal with that house if you want to buy or sell. We want The Exchange to make it open so that you can work into the market buy and sell just as people are now buying Federal Government Savings Bond and Sukuk through the equities market and they can sell through the equity market. So, if this applies to the mutual funds, we will see more activities in that sector.
Q: As a result of the impact of COVID-19, various sectors of the economy are looking for government assistance; does the same apply to operators in the stock market?
A: The problem is this. We are in the financial services and when you are in a stock broking and financial services, the question is that does the COVID-19 have serious impact on you? To some extent, yes because offices were closed and you have to continue paying salaries to some extent no especially for those who are able to acquire the OMS and trading online before the COVID-19 lockdown that is why you see more volume going to those who are into online trading. Majority of them aren’t online, they only trade on behalf of their clients and these were seriously affected by the COVID-19 because the clients could not move out. Do you know some of them were not even playing online and all these affected them and these are small players and they were really affected. But those who have the online trading platform and could trade and pay online COVID-19 didn’t stop the activities of the capital market. People were depositing their money online, trading online and were being paid online but these were possible for the major players.
Q: What percentage of the stock brokers can we say weren’t affected?
A: The percentage may not be much because I don’t think there are more than, may be, 15 per cent which is about 30 houses that control about 95% of the activities of the market though in terms of percentage they are few but in terms of volume and value they are great and therefore you see that most of the houses that have online trading have really benefitted during this lockdown period and those houses without online trading now are making efforts to have it now that they have seen its value.
Q: How can the affected houses be assisted?
A: The government can assist the financial sector in so many ways
The government has come up with the issue of security lending that enables the broker to borrow stock and trade and this will bring more activities. But, security lending can only be effective if there is also a margin account because you need money to be able to trade and the brokers need this. Yes, we have margin facility but so restricted because it isn’t allowed for the financial sector (banking) in term of activities banking controls about 60 – 70% of the market. When you see volume, most of the times it is banks. We want SEC in collaboration with the CBN to review that situation.
Q: Was it not the same margin facility that put the market in trouble before?
A: Though, margin trading had put us in trouble before it was because we didn’t have guidelines, but now there are guidelines and the market is more sophisticated. For instance, there is no longer any issue like price technical suspension. There were so many issues that put us where we were before with it. The merging facility will not be for everybody, it will be for institutional investors. I told you a stock gained 100% in just two months, if there is margin facility what’s stopping you from making money from that? We know the market and understand the market, but we want that margin facility to be allowed and flexible just like what is obtained in the developed market. Let it be flexible here with no restriction. Once you allow the margin facility with no restriction, I can tell you that the activities of our market will rebound faster and better because those who understand the market will play the market since the security lending is there, what we need margin facility to enable them to complement each other. Already, don’t forget that demutualization. This will put more money into stock dealing members, so quite a number of them have increased their working capital so all we need to do is activities and you can only get activities through security lending, through margin facilities with this, we believe that the market will be better and the brokers will be better if we can get this relief, I believe that the brokers will be better off, the market will be better off and investors in the will be better for it also.
Q: Why is it always difficult to get someone within SEC to rise to the position of its Director General (DG), even if someone from the organisation acted for years, the substantive DG will be brought from outside. What do you think is responsible for this?
A: You see, these are government policy issues. And when it comes to government policies especially now with the kind of democracy there is little we can do. Before Daisy Ekinne there was Adetunji who was acting and wasn’t confirmed and Suleiman Ndanusa took over from him. So, acting isn’t a new thing in most of these organisations and it’s not only in SEC. I challenge you, for the last 30 years, have you seen any CBN governor that came from the system? This is so because these are political appointments and anything that has to do with politicians they want to do it their own way. They see you as a civil servant and you are civil servant. I ‘m telling you go back from 1985 till date; there is no CBN governor that came from the system. So, it’s not only SEC, the simple reason is yes capital market is a technical market, the law makes it that you have to have technical knowledge, at least you must 15 years experience, notwithstanding the politicians will always be politicians, they will find a way to overcome even if they do who challenges them?
There has never been a time that the operators challenged the appointments by the federal government simply because you aren’t in the same pedestal how do you expect ASHON (Association of Stockbroking Houses of Nigeria) to rise up to challenge the DG of SEC? It will be very difficult just like the CIBN (Chartered Institute of Bankers of Nigeria) to rise up to challenge the appointment of the CBN governor!! Well, CIBN is lucky because most of the CBN governors are their members so you would see that its and MD of a bank that is appointed as CBN governor, that would have been the same in the capital market if government picks from the operators, give them that appointment but that is not done. So, we believe that a time will come that the government will understand that if they want the economy to move forward, they must take the capital market more seriously, then they will see the need to look more inside to appoint people that would move the market faster and better. I believe it’s just a matter of time.
Q: The Nigerian Stock Exchange (NSE) is in the process of its demutualisation and become a quoted company on itself. What is likely to change?
A: The capital market is not an institution where you wake up and say this is what I am going to do. For instance every fee you charge must be regulated by the SEC. So the fact that the exchange is demutualised isn’t enough reason to say this is what I will charge. Whatever fees the stock exchange charges must have been approved by SEC which is the policy body that oversees the entire capital market. Already, we are complaining that the cost of transaction is on the high side. So, there is no fear that transaction cost will go up.
Demutualisation will enable The Exchange to look wider and better because today if you ask what the major transactions on the NSE are, it is equity. If you check all the exchanges across the world, equity is a small part of the business; they do more of bonds and other things. So, I believe that this gives a challenge that the shareholders need returns and therefore exchange will look inward and outside to bring more products and to bring more activities and to bring more listing and to be trading not only in equity. Already, we have introduced mutual fund exchange bond now we are working on the derivatives and the security lending. I believe it is a challenge to the exchange to bring more products so that we will be able to trade much and therefore instead of equity being the bulk of the source of income, it will be the other way round just like what is obtained in the developed market. I believe that can work. The market will be better for all stakeholders.
Q: What is your final word to the investors to the investors
I can tell you to have confidence in this market and take advantage of the market. When the market was down in March/April, those who played the market today have gained more than 50% in two months. Some stocks gained about 100% .So what I am telling investors is where can you go and put your stock and gain 10% in a day? It is only in the capital market. When you go to the money market you are trading per annum and this you can make in a day in the capital market. You can ask the question why the foreign investors are playing our market. It is because they have seen that it has great potential and it has value thus our local investors should also take advantage of our market. Our market is good in the sense that even in dividend yield, just ordinary dividend, you’ve gained 14% you have gained 20%. So if dividend on a stock alone can give you double digits, why don’t you invest and forget about the price up and down, just restrict yourself to the dividend! That’s enough to make you invest!
Asides, we have seen that with the OMS, you can operate from your home. Right from your bed you can trade, you can buy, you can sell and all these make life easier that is what the foreign investors are using it 24/7, the local investors should use it better because most of our local investors rely on favourite prices before they make their next investment decision, the market has gone beyond that. The market now is live. You can see the prices changing every minute, every second every hour. Therefore, take advantage of those changes and make the best of it. If the investors do that, they will be better off.