The 2008 Nigerian Stock Market Meltdown: Why Retail Investors Lost Money

Most Nigerians who invest in the stock market today are institutional traders and high net worth individuals. The institutional participants comprise mainly of pension funds, fund managers and the large cooperatives. Retail investors have more or less abandoned the market and it appears that they are not in any hurry to come back. Not even some policies that have been put in place by the Securities and Exchange Commission and several enlightenment campaigns have been persuasive enough to attract the ordinary Nigerian investor to the local stock market.

The reason Nigerian retail investors have so much apathy for the stock market is easily understood when you consider the fact that a whole lot of people lost their life savings to the stock market as a result of the great crash. Nigerians have never experienced a market collapse of the magnitude that was witnessed in 2008. Driven by improved domestic economic conditions which characterized Nigeria’s return to democratic governance in 1999 and the reforms of the banking sector which encouraged banks to look to the capital market to source for funds in order to meet a new minimum capital requirement, there was a new wave of awareness about investment in stocks among Nigerians. Stock prices sky rocketed, reaching unprecedented high as more and more people across the investment divide approached the stock market to create wealth for themselves 안전한놀이터.

In March 2008, the market capitalization of quoted equities on the Nigeria Stock Exchange peaked at NGN13 trillion while the All Share Index was as high as 66,121.93 points emphasizing a decade of unprecedented growth. Unknown to many, stock prices had been overtly manipulated and overvalued to hoodwink unsuspecting investors who were driven by the profit objective. These unwholesome practices festered due to weak regulation and poor investor knowledge. However, a majority of people who had invested in the market did not understand the dynamics; they rode in the tide and eventually sustained heavy losses when the market collapsed later in the year.

Unfortunately this majority who lost money, some of them their life savings were retail investors. They were people who abandoned their small businesses to join the fray of speculators; some of them invested the whole of their severance benefits and pensions while a large number of others borrowed money from the banks under unbridled margin loan schemes that pervaded the landscape at the time. Unfortunately, when the Asset Management Corporation was established to help resolve the problem of toxic assets in the financial system, this category of investors were excluded because the volume attributed to this segment of the market was not considered very impactful on the larger economy. But the truth remains that many people in this category were rendered poor, many family ties got broken and their children’s education interrupted because of the losses they sustained from the capital market.

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