The Nigerian Stock Exchange is unique for many things. But one surprises me: news hardly move prices of equities in the short-run. It is like investors do not follow the news. The day an energy company got a big hammer from the Securities and Exchange Commission, I watched to see the impact on the equity. At the end of the day, nothing significant happened.
A bank CEO was locked up by EFCC over a weekend, the bank equity traded on the Monday largely unchanged. A bank declares record profit, and the next day, nothing significant happens on its valuation. Sure, over time, the trajectory becomes noticeable.
I have coined a phrase to explain this observation – latency lever; Nigeria has one of the longest in the world. Latency lever is a period between a significant news on a company, and when a visible associated impact (i.e. the lever is pulled) is seen on its traded equity. In U.S, it is near instantaneous; in Nigeria, give it at least a week!
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This brings me to We Company, the parent of WeWork, a quasi-technology real estate company that operates mainly in U.S. We Company last raised private capital at a valuation of $47 billion. It wanted to go public and had filed paperwork with road shows planned. But it has many governance issues, triggering scenarios that its public valuation could fall below $20 billion. So the road show is cancelled and the IPO is postponed, the Wall Street Journal notes..
WeWork’s parent postponed its initial public offering after investors questioned how much the company is worth and raised concerns about its corporate governance.
The shared-workspace company—which had planned to begin a roadshow to market the shares as early as Monday ahead of a trading debut next week—shelved the offering until at least next month, people familiar with the matter said.
This company has not even gone public but the impacts of news are evident. Its main backer, Japanese SoftBank Group, is even facing pushback as it works to raise a new fund from its partners.
The biggest backers of SoftBank Group Corp.’s gargantuan Vision Fund are reconsidering how much to commit to its next investment vehicle as an oversized bet on flexible workspace provider WeWork sours.
Saudi Arabia’s Public Investment Fund, which contributed $45 billion to the $100 billion Vision Fund, is now only planning to reinvest profits from that vehicle into its successor, according to people familiar with the talks. Abu Dhabi’s Mubadala Investment Co., which invested $15 billion, is considering paring its future commitment to below $10 billion, the people said, asking not to be identified in disclosing internal deliberations.
Contrast that with when a bank CEO is locked up by EFCC, a financial crime fighter, and the bank market cap unchanged at the end of the next trading day, you will appreciate the uniqueness of public investors in Nigeria. Yes, that lack of visible action cannot be explained by rules designed to avoid drastic fall on market valuation of companies. Of course, wait for a few weeks, those investors will begin to run. I am not sure if it is due to the structure of the exchange since it has become computerised to a large extent. I just think the investors are unique in how they process information, and take actions on Buy, Sell and Hold.
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The ‘uniqueness’ of investors in NSE may not be decoupled from information asymmetry, or just a case of having more of ‘ordinary investors’, with no ‘sentiment traits’, which most investors in developed markets have.
Many people locally treat stocks like treasury bill or bond, so they are largely resigned to whatever outcomes that show up, some don’t even understand anything there.
You cannot separate the issue from literacy level generally and financial literacy in particular. NSE didn’t design any special mechanism, the same way most people don’t care much or simply don’t know what to do with a thieving or misbehaving political class; call it docility!
Our awareness level is still hugely punctured and disconnected, you can see the results across board, not just in stock market.
I think you are spot on with this comment Sir. It’s largely due to the ‘docility’ and lack of financial literacy of the larger part of local investors as you said.
“Our awareness level is still hugely punctured and disconnected, you can see the results across board, not just in stock market.” Typical Francis, fair perspective.