The growing number of Nigerians, especially the young, developing an appetite for foreign stocks is becoming unsettling to the Nigerian authorities.
According to data by the Securities and Exchange Commission (SEC), over 400,000 Nigerians have their money invested in foreign stocks of companies such as Google, Apple, Facebook, Tesla Inc. Amazon and the likes, in the past 18 months.
The regulator said Nigerians actively trading or holding foreign equities were now in excess of those investing in local markets, with about 70 per cent of investors being less than 40 years old.
Consequently, SEC, in April, issued a circular directing Investment Technology platforms such as Bamboo, Chaka and Trove, Rise and Wealth.ng to desist from offering foreign stocks to Nigerians. The regulator said such stocks, not currently listed within Nigerian jurisdiction should not be offered to Nigeria-based residents and businesses.
The Commission hinged the ban on the provisions of Sections 67-70 of the Investments and Securities Act (ISA), 2007 and Rules 414 & 415 of the SEC Rules and Regulations, which states that only foreign securities listed on any Exchange registered in Nigeria may be issued, sold or offered for sale or subscription to the Nigerian public.
Prior to this time, young Nigerians relied on the online investment companies to buy foreign shares from Nigeria.
Some of the platforms, it was gathered, claim to be operating in partnership with Capital Market Operators (CMOs) registered with the Commission.
Accordingly, CMOs who work in concert with the referenced online platforms were notified of the Commission’s position and advised to desist, while the investing public was advised to seek clarification as may be required via its established channels of communication on investment products advertised through conventional or online mediums.
An investor, Thomas Sabo, said the interest in foreign stocks was fuelled by the need for portfolio diversification.
“There’s a popular saying that you should not put all your eggs in one basket and that is what I was simply doing when I decided to leverage the investment platforms to invest in foreign stocks. Those companies are fast growing and profitable. So one is more assured of better returns on their investment with them,” he said.
He further cited the volatility and slow growth of local markets, compared to the foreign markets as a motivator.
“Just look at Facebook for instance, since it was listed, it has been growing steadily and has remained profitable. Those who invested at the time of the IPO are smiling today,” Sabo added.
Another investor in foreign stocks, Lucky Nwa said to him, the measures by the regulator were all about preventing capital flight, considering the parlous state of the Nigerian economy.
“The protectionist moves are all about preventing capital flight. What they fail to understand is that we are resident in Nigeria and the yield from those investments would still flow homewards,” he added.
For Whitney Dennis, she would rather invest in foreign stocks than ever invest in the Nigerian stock market after her experience.
“As an undergraduate, 19 years ago, I bought shares of three different companies with about N100,000. As of today, the combined value of the stocks is less than N7,000. This is apart from the fact that the whole system is shrouded in confusion. 100 units of one of the shares I bought is now about 20 shares. A broker I met attempted to explain to me but I still don’t get it.
“In addition to this, I have never received dividends on any of those investments. So even though I am yet to invest in foreign stocks, I plan to because I can see that it is working. The stocks are growing and investors are getting returns for their investment,” she said.
A Markets Futurist, Sam Obafemi, said people are becoming more attracted to foreign stocks because the Naira is not encouraging and has fallen every year since forever, and so many people are disposed to buying in foreign currencies, including stocks so as to secure their future and the future of their investments.
“It is simple logic. Buying foreign stocks is not hatred for the Naira or Nigeria. It is simply an economic decision,” he said.
He said the ban by SEC may seem right for the reasons given but was not a well-thought out decision.
“As a regulatory body, the SEC has attempted to intervene so as to minimise risks for Nigerian buyers, which is alright. But it was taken in a hurry and it may not have been a wise step, in my opinion.
“I think it should have been a consultative decision. Bring together players, buyers representatives, and as many stakeholders as possible to discuss the security, potential, and challenges of the entire value chain then approach the National Assembly to sponsor a bill to make enabling laws that guarantees safety and wealth of all parties involved. This is what should have been the steps. But then, as usual, ban is the language of the Nigerian system. It is sad,” Obafemi added.
Chartered capital market analyst, Matthew Ogagavworia, however said the ban by SEC was in order as the investment technology firms are not registered or regulated by SEC.
“SEC does not control them. SEC regulates capital markets investment in Nigeria not abroad and thus will be doing a good thing protecting unwary investors from the vagaries in the international investment environment,” he said.
He attributed the lack of interest in local stocks by young Nigerians to the state of the economy and poor regulation of the industry.
“Younger Nigerians can have more interest in the Nigerian market when the economy improves and regulation improves,” he added.
In a recent interview, Executive Commissioner, Operations of the commission, Dayo Obisan said the commission will monitor more closely, activities of the local companies selling foreign stocks to Nigerians.
He said the growing interest among young Nigerians was becoming a cause of concern to the regulator.
According to him, it creates an avenue for exploitation.
He said plans were underway to license firms offering such services under a digital sub-broker regulation which according to him would provide a form of clarity for their activities.
