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Stock Market: What does the circuit breaker tell us?

On November 12th, 2020 at 12:55, the NSE circuit breaker kicked in as the index went from 33,268.36 to 34,959.39 beyond the set 5% threshold.

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Sulaimon Adedokun resumes as TRANEX Board Chairman  Dangote Cement, Zenith Bank, shares, stocks, ARM's Shares of fortune, Understanding securities lending, nigerian stock exchange, coronavirus, NSE, Bears return ASI down 0.13% as trading volumes plunge, What’s going to happen to Nigeria’s stock market in May?, What’s going to happen to Nigeria’s stock market in May?, Nigerian bourse gains N37. 26 billion, triggered by BUACEMENT, ZENITH

On Monday, October 19th, 1987, the US Dow Jones Industrial Average (DJIA) lost 22% of its market value in one day – a day now referred to as Black Monday,  represents the largest one day fall in the history of the US stock markets. To put this in proper perspective, the largest one day drop in the US stock markets due to COVID-19 shut down occurred on March 16th, 2020 with the DJIA closing 12%.

Why does stock prices fall?

The simplest reason is because demand falls i.e. stocks are placed on OFFER to be sold. Same with rises? Yes, demand for stock rises, thus there is a BID to buy. So, ‘offer’ means prices fall, while ‘bid’ means prices rise.

What caused Black Monday?

No one knows, but it is agreed the selloff started in Asia, then moved to Europe, and finally hit America. This was before the time of fully automated trading systems; so, the order was filled and executed by manually placing with a so-called ‘Specialist’ that guaranteed a market.

On that Monday, there were more offers for stocks than bids. Traders also tended to move in a trading herd, if broker A offer to sell a stock, Broker B is likely to start to worry and ask questions like ‘why is he selling?’, ‘what does he know?’ However, if Brokers, A, B, C, and D start to sell off huge stock positions, then Broker F will not just worry, he will follow the herd. Why? Well, there is safety in the crowd, so it seems.

Black Monday was preceded by Black Friday on October 16th, where the stock market crashed by 108 points – a record before October 19th, so the market was already ‘on offer’, and traders were already spooked. In effect, the herd was jittery.

The markets opened Monday 19th with more sale orders than buy orders, the markets essentially started to drop, and kept dropping until the DJIA closed at 508 or 22% fall.

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(READ MORE: Seplat announces exchange rate of N385.78/$1 in payment of its interim dividend)

The stock markets are designed to facilitate trade and enable price discovery. The price of a share is discovered by the intersection of demand and supply driven by investors’ estimation of risk, return, and the overall economy. Black Friday, however, was pure naked fear. There was no war, no recession, no terror attacks; just the entire market moving as a herd and selling and pulling down other markets.

In the aftermath of this general fall in the prices of shares across the board, the New York Stock Exchange introduced control measures called ‘circuit breakers‘ that are intended to cut off excessive volatility in trading, if the market rose and fell above or beyond a set benchmark. The idea is to break up the ‘herd’ and allow time for contemplation and research to aid decision making. For instance, for the S&P 500, a circuit breaker may be triggered after a 7% fall and the market temporally closed for 15minutes.

Interestingly, on October 20, the DJIA rose to a then-record 102 points in a day.

The Nigerian stock exchange also has its rules on circuit breakers. According to the NSE, anytime there is a 5% market-wide rise or decline (Extraordinary Market move) in the value of the NSE All-Share Index (ASI), the circuit breaker will halt in all equities listed on the Exchange, for a period of thirty (30) minutes.

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On November 12th, 2020 at 12:55, the NSE circuit breaker kicked in as the index went from 33,268.36 to 34,959.39 beyond the set 5% threshold.

So, what happened?

There were more bids to buy shares than to sell shares and these bids were across the board, not just in one sector. It does appear in my opinion that investors have started to move money away from low yielding treasury bills and bonds to the equity market.

Is this a one-off purchase? Or an asset allocation rebalancing? Is this a sign of expected higher earnings from Nigerian companies, or just new money causing a minor bubble?

If this is real funds transfer, then the Nigerian stock market is set for positive gains. The Pension scheme alone has N11trillion in assets, with nearly 9% allocated in Treasury bills earning a maximum of 0.30% in stated yields, an even 2% rebalancing away from Treasury Bills to the equity market may be the spark the NSE has been seeking.

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Columnists

The role of healthy communication in the workplace

To foster a healthy work environment, employers should take communication more seriously.

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Networking, way to success in Nigeria

Profit is the purpose of every business organization. The best way to sustain profit is to strengthen the “Employer-Employee” relationship and the “Buyer-Seller” relationship. The profit of every business organization depends on these two. The success and failure of every business organization also depends on these two.

Communication is one of the major concerns in an organization and it is very necessary in our workspace and among people around us. Constant communication helps to build a strong connection in the relationship between an employer and an employee. It is crucial to the growth and success of your business and it allows everyone to provide input and feel that their ideas are valued.

Everyone can communicate as long as it is with words. In an organization, both the employer and the employees should develop good communication skills.

Your employees are part of the vision of your company and their opinions and innovations should be considered. This will go a long way in building a positive workplace culture.

Communication can be in oral or written form; and while written communication is the preferred form of communication in organisations, oral communication should neither be limited or downplayed. As an employer, your employees should be able to communicate freely with you. Communication reminds your employees about the goals of your company and helps you to delegate responsibilities effectively.

According to research, 57% of employees report not being given clear directions. A survey of 400 companies with 100,000 employees cited an average loss of $62.4 million per annum because of inadequate communication between the employer and the employees.

It is the responsibility of an employer to communicate the organisation’s vision, mission, goals and objectives to employees. Goals must also S.M.A.R.T (Specific, Measurable, Achievable, Realistic and Timely). Where communication is absent or ineffectively handled, employees can become unproductive, unresourceful, demotivated, and disorganised. There may also be high employee turnover which ultimately affects the profitability of the business. Without effective communication, an organisation will most likely be unable to retain its star performers or motivate average-performing employees into becoming highflyers.

Communication in organisations should not be left only to the Human Resources department, but feedback should also be encouraged from employees. Where there is a gap in communication, employees are left with no choice but to fill these gaps with rumours, (wrong) assumptions, gossip and the spread of misinformation. This creates an unhealthy work environment that is detrimental to the business.

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To foster a healthy work environment, employers should take communication more seriously. They should not only learn the art of effective communication but should also encourage and be receptive to feedback from their employees.

 

 

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Why NNPC’s Borno power plant may not materialise 

The glaring security challenge cannot be overlooked in considering a major power plant project in Borno State.

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Only a few days ago, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, led a delegation to Borno State to meet with the Governor of the State, Babagana Zulum.

In the conversation with Zulum, Kyari promised the establishment of a gas-fired power plant in Borno State within a maximum of 4 months to solve the recent blackouts that resulted from insurgents cutting off Borno from the national grid since January this year.

In Kyari’s words, “We have talked to each other and we think it’s very possible to establish a dedicated power plant in Maiduguri which will serve current needs of power supply not only in Maiduguri but to other parts of the neighbouring cities.”

READ: NNPC GMD says AKK pipeline, Nigeria’s biggest gas project is 15% complete

Yet, there is a significant possibility that the power plant promised by Kyari may not materialize for many reasons, the first of which is security. In the meeting with Kyari, Governor Zulum had noted: “The ongoing insurgency has cut off the entire Borno from the national grid in the last three months. We put all our efforts and restored it back… but unfortunately, after 48 hours, the same group of insurgents went back and destroyed the main tower again.”

This glaring security challenge cannot be overlooked in considering a major power plant project in Borno State, particularly noting that the State and its surrounding communities have been the hot zone of insurgent and terrorist attacks by Boko Haram insurgents since 2009. Borno, Yobe and Adamawa have particularly been states where the insurgents have set up shop and carried out various activities, including kidnap, extermination of entire communities, burning of markets and religious buildings and the attack on the United Nations compound, in each case claiming tens or hundreds of innocent lives.

READ: Analysis: NNPC and its refining losses

One report reveals that at least 37, 500 people have been killed by the insurgent group since May 2011, a modest number, some say. Also, till date, some of the secondary school girls kidnapped in the April 2014 Chibok incident are yet to be returned to their families. It is then bewildering how Kyari intends to see to the construction and operationalizing of this gas power plant.

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Additionally, while the Minister of Petroleum for State, Chief Timipre Sylva, announced last year about the discovery of oil and gas deposits in the North, we have not seen any exploration and production kick-off. It then begs the question of where the gas for the Borno power plant intends to be sourced. The only gas pipeline that runs through the North – the AKK- is still in its first phase of construction out of three phases and has been earmarked at the earliest, to be completed in 2023 – not counting the typical delays the project will experience along the way.

READ: NNPC, only Nigerian company to cut losses by N800 billion in one financial year – GMD

Should the AKK by some stroke of luck materialize much earlier than the target date, the pipeline route is a considerable distance from Borno. It runs the route of Ajaokuta-Abuja-Katsina-Kano, its endpoint, a striking 481km from Borno State. Thus, there would have to be construction of a tie-in pipeline almost as long as the AKK from Kano to Borno State to get gas to Borno.

Optimists may reference the oil and gas discovery in the North and how production may start soon, thus obliterating the need for a 481km pipeline. This optimism however is not well-founded, as insecurity has been shown to be a major risk to oil and gas projects everywhere in the world. One of the major reasons the Trans-Saharan Gas Pipeline proposed to run from Nigeria to Algeria was abandoned was due to security challenges posed by Nigeria’s Movement for the Emancipation of the Niger Delta (MEND), the Tuareg guerilla movement in Niger and other insurgent groups along the proposed route of the pipeline.

READ: Why NNPC should be commercialised

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These increased the risks across board, including for completion and operations through the lifecycle of the project. As such, failing to fix the security threats in northeast Nigeria makes any proposed gas plant project a pipe dream. Transporting gas via LNG trucks is not a better option, given that the drivers and their cargoes would be in danger of being kidnapped, shot at or bombed. The risks for both personnel and investors are high.

In any event, promising a power plant in 4 months for the people of Borno is unconscionable, since a typical gas power plant will take between 1 to 6 years to construct in relatively peaceful regions. What the government needs to do instead of making promises it cannot keep is to work arduously to fix the security challenges in Northern Nigeria and at the same time consider using decentralised solar power to provide power supply to homes, government institutions, schools and businesses while plans to produce gas in the region or transport gas to it are underway.

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