Investment is a trade-off of risk, return – Onukwue
Sam Onukwue, chairman, Association of Securities Dealing Houses of Nigeria (ASHON) speaks to Iheanyi Nwachukwu on among others issues, the need for investors to take sound investment advice for superior return, noting also that the new administration requires stockbrokers to grow the economy. Excerpts
What is your professional advice to investors at this period of uncertainty?
Uncertainty and volatility are parts of stock market dynamics. They must be factored into risk analysis. As some investors are apprehensive about how the market shall respond to the current political atmosphere, smart ones are already taking position. There can never be a perfect period for investment. It is about taking a sound investment decision. This is why we have always advocated that investors should utilise the services of stockbrokers, also known as securities dealers.
Why are you encouraging investors to take position at the moment?
Regardless of the state of uncertainties in the global financial markets, investors that take sound investment advice have opportunities for superior return on investment on constant basis. Many investors often lose huge amount of money by relying on their own intuition or consulting unqualified investment advisers. Investment in any asset class requires a lot of variables, including an investor’s investment objective, risk tolerance, sources of funds and time horizon, among others. Investment is a trade-off of risk and return, whereby an investor aspires to post highest return at lowest risk. This is achievable if proper analysis is done by certified investment advisers. Our Association, Association of Securities Dealing Houses of Nigeria (ASHON), shall continue to engage investors on the need to work closely with stockbrokers for timely investment advice.
What about the risk elements?
We are not saying that there are no risks. Even asset classes that are believed to be risk- free contend with inflation risk, exchange rate risk and a host of others. What we are saying is that risk can be mitigated to ensure superior returns. In every risky situation, there are opportunities. The same applies to investment. It is all about understanding and deploying appropriate investment strategy. It’s not a game of one-size-fits all. Contacting a professional investment adviser is in itself a risk aversion measure. Investment professionals’ profile their clients as a precondition for advice on the appropriate investment opportunities.
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What is the nexus between the Capital Market and the economy?
The capital market, especially, the stock market, is the barometer for that gauges the economy. Its array of statistics show the direction of an economy This is why it is often said that there is linear relationship between the development of a capital market and the economy. The capital market provides a platform for government to mobilise long term funds to finance infrastructure. Companies utilise the market to raise funds for series of projects while retail and institutional investors need the market for capital formation and other benefits. Studies have shown that there is correlation between the development of an economy and its capital market. One of the most visible professionals in the capital market is the stockbroker.
These are agents of financial intermediation in the process of mobilising fund from the surplus economic unit to the deficit one. They are highly skilled, coming from diverse professional backgrounds. Stockbrokers are needed at Monetary Policy Committee (MPC) of the Central Bank to explain the implications of any monetary decision of the apex bank on the capital market. The new administration requires Stockbrokers at all levels to drive the economy and increase government’s utilisation of the capital market. Currently, most decisions of the apex bank are skewed in favour of the money market, the short-term end of the financial market. This should not be so as the financial market has the long-term arm which is the capital market.
In specific terms, how can the government fund infrastructure through the capital market?
The government at all tiers should take advantage of the market to float fixed income securities to fund infrastructure projects. The continuous over subscription of SUKUK Bonds signifies investors’ appetite for safety of their capital in a recessionary period.
How would you describe the relationship between the government and the stockbrokers?
It can be better. Stockbrokers operate from two professional platforms, the individuals and corporate entity. Every stockbroker is certified by the Chartered Institute of Stockbrokers (CIS) while at corporate level, we have the Association of Securities Dealing Houses of Nigeria (ASHON) of which I am the Chairman. ASHON is a registered Trade Group by the Securities and Exchange Commission (SEC). Market development is at the core of ASHON’s and CIS’ activities. Each group provides blue prints to the government annually on how it can utilise the market to grow the economy. The challenge is the failure of the government to utilise our inputs. Worst still, the Federal Government does not take inputs from the market operators on any capital market policy whereas the operators are the bridge between the Government and investors. This is one area that the incoming administration should exploit. The capital market has absorptive capacity to fund most of the infrastructure and this will reduce the government’s penchant for controversial borrowing. Government’s utilisation of the market is a win-win affairs as more securities will be listed to deepen the secondary markets.
After the swearing-in of the new administration, which policy would you advocate for immediate reversal to send positive signal to the capital market?
Capital Gain Tax (CGT) should be abolished. The 10 percent tax on capita gains is a major disincentive to institutional investors. The tax is out of tune with the global standard whereby every market is reducing transaction cost. As stockbrokers, we had made our position known to the government but nothing really has been done. The CGT represents an increase in the cost of transactions which will encroach on returns on investment. Its retention will definitely lead to diversion of resources from the capital market to the money market, especially, that the nominal anchor, Monetary Policy Rate (MPR) is currently is rising.
What short term measure can the new administration adopt to address the controversial issue of CGT?
There can be an extension on of waiver on implementation of CGT to reduce transaction cost and attract all cadres of investors into the market. This is consistent with the need for the government to implement
market-friendly policies to encourage more companies to seek quotation on the securities markets. I believe that rather than stifling the market with the re-introduction of CGT, government should implement policies that will reverse the waning interest of foreign portfolio investors and their counterparts that are willing to access the Nigerian market through Foreign Direct Investments (FDI) by creating a tax-friendly environment. As a result of unfriendly investment environment, FDIs in our market has continued to dip.
What should be the pre-occupation of ASHON in the rapidly changing dynamics in the market?
ASHON has always been at the forefront of ensuring that its members operate professionally while the Association collaborates with the capital market regulators, operators and other members in the ecosystem. ASHON shall continue to play pivotal roles in policies that positively impact the capital market. We were at the forefront of banks’ recapitalisation and demutualisation of The Exchange among others.