Business

Why retail investors should leverage market data

Investors should be encouraged to return to equities’ market with adequate understanding of market data for investment decisions. CHRIS UGWU writes

Most retailed investors are impeded by a number of factors from investing in equities’ market. One of the factors is relatively weak confidence in the market as a result of the 2008 market crash, which many are yet to recover from. There is also the issue of wrong investment time horizon, as most Nigerians expect their investment to generate returns within three months since they cannot relate with the fact that investment in the capital market is of long-term nature. Other factors include the near complete lack of credit for investment in the capital market and the recent bear run, which has further scared the few retail investors, who were planning a return to the market. During the near market crash in 2008, most retail investors, who played the stock market, were guided like sheep without a good shepherd. They were left to their fate as the market tumbled.

The dealing members and other share marketers, who had led them to investment quagmire, were nowhere to be found when it mattered most. They were left in the lurch to lick their wounds, the best the so called analysts could do was to speak positively about the future and the imminent market turnaround, which to date has not yielded fruit.

Most retail investors, however, deserted the market when they realised that they were just a means to an end with no real fiduciary responsibility being practiced by market professionals, who in some cases, were entrusted with the life savings of their clients with full discretion. More so, they don’t understand the use of market data for investment decisions. However, since education helps in improving financial literacy of investors and for the fact that the most effective investor protection starts with a well informed and educated investor, the Nigerian Stock Exchange (NSE) recently called on capital market participants and investors to exploit the market data for smart investment decisions.

Need for market data

The Nigerian Stock Exchange (NSE) stressed the need for market stakeholders to rethink the importance of data to remain competitive in businesses. Chief Executive Officer, NSE, Oscar Onyema, while speaking at the 7th edition of the Nigerian Capital Market Information Security Forum (NCMISF), said data was at the core of the fourth industrial revolution, and that this industrial wave could usher in great opportunities when harnessed appropriately. He said: “We now have the Internet of Things and everyone is getting connected.

Extracting these opportunities, refining and transforming prospects with high efficiency into real products is not easy, yet with innovation it can be accomplished.” Onyema, who was represented by Tinuade Awe, Executive Director, Regulation, NSE, noted that to realise this objective, a new way of thinking, and indeed rethinking the central importance of data and the individual in our businesses was fundamental to riding on the crest of the new wave. “Our ethics and reputation are important to us, hence we must protect our data, including those entrusted to our care relating to natural persons. Respecting a data privacy rule is the reason for our gathering today. “We are not only set to safeguard the rights of natural persons to data privacy, we are also poised to ensure that Nigerian businesses remain competitive in international trade through the safe-guards afforded by a just and equitable legal regulatory framework on data protection and which is in tune with best practice.

“Our theme this year centers on protecting Personally Identifiable Information (PII). The Nigeria Data Protection Regulation gives an insight into the National Information Technology Development Agency’s (NITDA) aspiration towards securing the processes that Nigerian organizations use for collecting, processing and storing information related to their clients, the data subject. It is also applicable to Nigerians residing outside Nigeria. The requirements of the regulation are challenging. However the Nigerian capital market cannot be left behind in this regard.

“Today, the Exchange, through the auspices of this 7th NCMISF, is leading the drive for compliance with the Nigeria Data Protection Regulation (NDPR) in the Nigerian capital market. We have a capital market that is data-driven and responsive to the needs of the public, therefore, upholding compliance is key for us. “We are set to raise the bar in compliance, I thereby, encourage us to open our minds to other possibilities on the horizon; the transformational power arising from “the fourth industrial revolution,” he said.

Onyema had also at a workshop, themed ‘Understanding Market Data for Savvy Investing and Wealth Creation’ a few years ago, said: “Domestic investors, and indeed foreign portfolio investors, require an elevated level of insight in order to discern between great investments and lame investments, especially during a challenging down cycle.

That is why this workshop is designed specifically to provide capital market participants with sufficient knowledge about exploiting NSE market data for smart investment decisions. “When we talk about market data, we refer to the pre and post trade-related data for the financial instruments traded on NSE. Our market data informs traders, investors, media and others in our market on the quotations, latest price, and historical trends for the equities, fixed-income, and exchange traded funds (ETF) products that are traded on our platform. This information is not only used in real time to make instantaneous buy and sell decisions, but the historical market data is used to make price projections, as well as calculate market risk on investment portfolios,” he said. Onyema pointed out that the delivery of market data to users was resource heavy and requires specialised technologies designed to handle the collection, processing and dissemination of massive data streams. According to him, “at the NSE, this effort is underpinned by our ‘next generation’ trading engine, X-GEN, which was built in collaboration with Nasdaq in 2013.”

Stockbrokers tasked on data analysis

As part of the strategy to attract retail, institutional and foreign investors in Nigeria’s capital market, stockbrokers had been urged to deepen their knowledge of data analysis to enable investors identify major risk factors in each quoted company. Commenting on one of the major challenges to investment in securities in Nigeria, an investment analyst and Chief Executive Officer, Ademola Omolehinwa and Company, Mr Ade Omolehinwa, lamented the dearth of data that reveal risk factors of quoted companies in Nigeria.

Omolehinwa, who made a comprehensive presentation on “Securities Analysis and Valuation in the Capital Market” at the Third Stream of the Executive Conversion Programme of the Chartered Institute of Stockbrokers (CIS) in Lagos, explained that inability to identify the major risk factors, which he technically called beta factors, was a major impediment to investment in the quoted companies in Nigeria. According to him, in developed economies, a potential investor can easily buy data of a quoted company and identify its risk factors as a basis for the decision to invest hugely in such a company. “Comprehensive data analysis to show risk factors of a company is lacking in Nigeria although few companies that are rating agencies do a little bit of such. “Can we easily get beta factors of our quoted companies in Nigeria? In developed economies, one can buy data of a company and identify its major risk factors. What obtains in those economies is that companies’ data are analyzed alongside with the performance of the economy.

“Once the risk factors of a company are identified, it becomes easier to analyze the stream of expected return and required return from the company. These are important data for investment decisions. We expect our stockbrokers to develop capacity in this area,” said Omolehinwa. Corroborating him, a former President of the Institute, Mr Mike Itegboje, who made a presentation on “Overview of the Financial Markets and Institutions,” explained that relevant information on the quoted companies would attract informed retail investors, institutional and foreign ones into the market. According to him, the executive conversion programme is designed to raise the bar of human capital in the securities industry.

An investment analyst, Mr Oluwole Adeosun, who addressed the participants on the “Primary and Secondary Market and their Operations,” urged the participants to attend the Institute’s Continuing Professional Development (CPD) programme in order to keep tab on the development in the market on a regular basis. The participants, who were mostly university dons, commended the institute for the programme, and promised to support the capital market through research and analysis of data. The Deputy Vice Chancellor, Adeleke University, Ede , Professor Solomon Adeola, said the programme would spur his colleagues to collaborate with the institute in the area of data analysis and also encourage their students to develop interest in the financial market.

Last line

In the light of the lessons learned from the stock market collapse, there is a strong requirement to strengthen the Exchange’s investor education/awareness functions, especially for retail investors and, by extension, foreign investors, to avail them adequate knowledge of the nation’s capital market.

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