Nigeria looks to boost liquidity and foreign participation on stock exchange

Reuters reported this week that the Nigerian stock exchange may lengthen its trading hours and loosen restrictions on share price movements in a bid to boost liquidity an attract more foreign investors.

Interim Director General Emmanuel Ikazoboh reportedly told Reuters the exchange was considering lengthening its trading day by two to three hours and doubling the limit on daily share price movements to 10% to try to boost volumes.

Ikazoboh said the 5% cap on individual stock movements had “drastically” reduced liquidity, while a training day which ends at around 12:30 local time (1130 GMT) shut out U.S. and other foreign investors.

“Within the next three weeks, I believe the case of the price cap and the number of hours trading will be determined. Papers have been prepared, we just need the (stock exchange) council and SEC’s approval,” he said.

Nigeria’s equities market, despite being one of the more liquid markets on the continent behind Egypt and South Africa, has continued to struggle in terms of performance and trading volumes over the past two years, hindered by poor regulations as well as the banking crisis that is only now looking like coming to an resolution.

The relatively poor market performance is reflected in the numbers, with aggregate stock market turnover between January and September 2010 having been recorded at 72.6bn shares valued at NGN 589.9bn, exchanged in 1,568,631 deals. In the comparable period during 2009, the market recorded turnover of 75.3 bn valued at NGN 508.7bn in 1,370,384 deals.

The listing of Dangote Cement is expected to see improved liquidity, but this will still be concentrated, and no doubt the idea is to spread activity beyond the banking sector and few other big caps. Ikazoboh confirmed this, saying diversifying an equities market dominated by banking is key to attracting new investment, with more than 250 companies seeking to list, including ones from the telecom, energy, and manufacturing sectors.

The SEC has said the reforms will lead to demutualisation, turning the exchange into a listed company, making it more competitive and giving it a larger incentive to bring in profitable new products. “We are working towards having the African stock exchanges integrate to create economies of scale,” Ikazoboh said, adding demutualisation would be “on the front burner” from next year.

He also said the bourse was in talks with South Africa’s Absa Capital about listing an exchange-traded fund (ETF). A more vibrant and transparent stock exchange structure will certainly do much to boost the perception of the NSE, hopefully the political will to see it through will remain in place.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.