From 1999-2008, the Nigerian stock market grew, soared and gained extreme strength. The market experienced a record of expansion and boom as investors, regulators, market analysts were all pleased with this development. The Nigerian Stock Exchange (NSE) All share index grew from 5672.76 on January 2, 1999 to 58579.77 on January 2, 2008, a 90.3% increase. The market hit a new high on March 5 2008 when the NSE All-share index hit a record of 66371.20 points or an increase of 1070%. Then the Index started to head down. The NSE All Share-Index dropped by 45.8% or 26539.44 points to close at 31450.78 on December 31, 2008. From March 5, 2008 to December 31, 2009 the NSE All-Share Index dropped 69% (20827.77), between 1999 and early 2008, total returns on most stocks were over 100%. The Nigeria stock market emerged as the world’s best performing stock market in 2007 with a return of 74.73%. However, as at December 31, 2008, it earned the enviable record of being one of the world’s worst performing stock markets in 2008 after losing about #5.7 trillion in market capitalization and 46% in the Nigerian Stock Exchange (NSE) All Share index. What caused the crashed of the Nigerian stock market?
CAUSES OF THE CRASH
1. Weak Regulations: Weak Regulation is responsible for the Nigerian Market Crash, there were sharp practices and unprofessional conduct by other market operators and Stockbrokers, unethical professional advice by issuing houses to issuers, advising the investing public to fill forms for e-certificates and turning round to issue share certificates and hoarding of Initial Public Offer (IPO) certificates by Registrars in connivance with the company to give a few the privilege to exit first and/or to enable the stock price hit a set level
2. Regulators Perception of Market Operators: The two regulating stock broking bodies in Nigeria (The Chartered Institute of Stockbrokers (CIS) and the Association of Stock broking Houses of Nigeria (ASHON) as a factor that affected the market have advanced the wrong perception held by the regulators that market operators or stockbrokers were fraudulent or thieves. The CIS and ASHON had argued at different for a with the regulators that, in view of the fact that professionals in these sharp practices were few and known to the regulators, a distinction should be made and the few established cases thoroughly dealt with; else seeking to exercise the tumor and putting a halt to the inflammatory growth of sharp practices in the way being done by the regulators would affect investors confidence and plunge the market.
3. Exit of foreign portfolio investors
4. CBN policy on common accounting year-end for financial institutions (Banks)
5. Suspension of Credit to Investors and market Operators
6. The Boom and Collapse of the Shadow Banking System in the Advanced Market
7. Deluge of Private Placements and Public Offers
EFFECTS OF THE CRASH
1. Bankruptcy and Business Failure: As a result of Crash, Several businesses including stock broking firms, were on the verge of collapse in Nigeria if there is no interventions as several firms were unable to meet their quarterly or monthly interest obligations to bank, there were negative impacts of the debt, including banks blocking the accounts of the affected stock broking firms has hindered their operations.
2. Loss of Job: This was another visible effect of the Nigerian bubble burst. There are about 300 stock broking firms besides other market operators like issuing houses, registrars, e.t.c of all the market players, stock broking firms were the worst hit. As at December 2009, stock broking firms alone had shed off averagely 65% of their work force as well as closed down some of their branches as part of the strategies put in place to survive the stock market meltdown.
3. Psychological pains: Several market operators and investors are in serious pains, sorrow and anguish. Beside those with high blood pressure or the few that slumped and died, several others including market operators and professionals have embraced God for survival and comfort.
4. The inadequacies of People Managers, Government and Processes were brought to the fore
5. Reduction in the Availability of Credit Facilities: There was a general reduction in the availability of Credit. Consumers and businesses cannot access credit easily as they could in 2007 and 2008. Banks are obviously at the brink and consumers and particularly businesses have been facing a tougher time since 2008
6. A return of Sanity: There is a general consensus among market players and the regulators that a return to sanity is inevitable as the only way forward, since “all have sinned”
7. Erosion of Investors’ confidence and the Vaporization of Investors’ Real wealth: The effects of the market crash in Nigeria are frightening as it stands as the worst financial blow to Nigeria since independence. Nigerian Investors lost an estimated 70% of their collective investment in the stock market between 2008 and 2009. By December 2009, The NSE All-Share Index was down 34% from its 2008 high. Effectively, over = #7trillion was vaporized. One of the effects of the crash therefore is the erosion of Investor’s confidence and the vaporization of Investors real wealth.
8. Debt Burden: During the year preceding the crash, market operators and investors (Individuals and corporate) became increasingly indebted. Despite employing different management strategies, 95% of market operators and investors are burdened with debt that may take years to repay
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