The Risk of Political Alignment
The Board and Management of the Nigerian Exchange Group recently visited the President, sparking discussions about the bourse's independence. Following the visit, the Group Managing Director of the exchange reported that over 500,000 millionaires have been created under the current dispensation.
While the exchange has recorded strong performance, analysts warn against aligning too closely with the presidency. Pushing too close to the government risks pulling the market into partisan politics as elections approach.
The exchange must guard its neutrality to remain a credible arbiter of wealth creation. Allowing political actors to use market performance as a validation of reform policies could make the bourse a target for opposition attacks.
Low Float and Inflation Drive Paper Wealth
The claim of creating 500,000 millionaires faces scrutiny when analyzing current economic realities. In an inflationary period, corporate profit margins widen significantly, which can sometimes border on profiteering rather than sustainable growth.
Furthermore, structural issues within the market raise questions about the sustainability of these valuations. Most highly capitalized stocks on the exchange trade with less than 20% float.
This low liquidity means demand easily outpaces supply, rapidly driving up share prices. Consequently, institutional shareholders are left holding high paper values that may not reflect actual market depth.
Geregu Default Highlights Market Fragility
The danger of political exposure becomes clear when individual corporate setbacks are weaponized. For example, Geregu Power PLC recently missed its bond repayment schedule.
If opposition politicians view the exchange as an extension of the ruling administration, such defaults could be used to trigger investor panic. This could lead to a run on the market, widespread dumping of shares, and a drop in the All-Share Index.
The exchange must operate strictly as a self-regulatory organization under tight guidelines. Maintaining absolute independence is crucial to protecting the market from becoming a political battleground.
