Sixty-one of the over 200 equities listed on The Nigerian Stock Exchange (NSE) were stagnant in terms of price movement during 2014 business Year
A study of the periodic data provided by the Nigerian Stock Exchange (NSE) shows that not less than 61 of the over 200 quoted stock were dormant in the 2014 trading year. The dormant stocks also contributed little or nothing to the stock movement in the market during the period. Further investigation revealed that bulk of the stocks belong to the Insurance Carriers Brokers and Service sector of the Financial Service sector of the market. The companies in the financial service sector make up 20 of the stocks in which 15 are stocks of companies from the insurance service sub-sector.
The remaining five are Unity Bank (in the Banking sub-sector) and other financial service companies. Seven of the dormant stocks belong to the Industrial Goods sector. Five each were company stocks in the Construction, ICT and Consumer Goods sectors respectively. Others include Agriculture one, one Conglomerate company and two Healthcare companies. Using report of the week ended December 2014 for illustration,these groups of companies traded a total of only 67.64 million shares worth N33.99 million in bare 45 deals.
This is only 5.43 and 0.21 per cent of the total volume and value of trades for that week respectively. The total market capitalisation of these stocks as at December 31, 2014 was N233.47 billion, representing only 0.20 per cent of the overall market capitalisation. Most of the stocks had unit values of N0.50 with the exception of a few whose prices were slightly above the nominal values. Mr Ebokaiwe Onyx of Onyx and Co., a financial services consultancy firm, said most investors buy stocks to make profit. Profittaking is either through dividend pay-out they would at the end of every financial year or through resale when the value of the stock appreciates. To be able to achieve their goal of profit making, the investors invest in stocks that are likely to appreciate in value during a short period of time.
They also invest in companies which would be able to pay dividend at the end of the financial year. He explained that only companies known to be profitable can meet this purpose. On why the value of the shares remained the same for so long, the financial services expert said it has to do with the Economic law of demand and supply. “As the law of demand states, the higher the demand the higher the price and vice versa”, Onyx said, adding “This is also how it works in the stock market — the more people demand for a stock, the higher the price. Information gathered from industry experts and market reports, especially as it relates to the dormant stocks, show that the dormancy in terms of the unit value of the stocks is due to low demand for the stocks by investors, as investors believe that buying the shares would not be profitable to them.