Now who will save stock markets and equity investing?

Gerry Nolan, writing on a Russian-backed news platform called Pravda has issued a dire warning on the fate of the euro and dollar, in a widely-publicised article titled ‘The Euro’s Imminent Collapse and the Greenback’s Last Illusion’. The kernel of his writeup is that because the European Union seems to have ceded monetary policy sovereignty to the US by going along with the US agenda to seize $300 billion worth of sovereign investment belonging to Russia as a consequence of the Ukraine-Russia war, it was just a matter of time before the euro collapsed as the world has been signalled as to the risk of investment in western nations. Nolan believes that whereas the Euro will be the first victim, the US dollar too will soon tumble after.

The writer brings attention to the power of trust in the value and future of the world’s major currencies. There is also the substitution effect to consider. Gold prices have skyrocketed to an all-time high of above $2,600, and as Nolan posited, it may skyrocket some more for this reason as people make a dash for other alternative stores of value. Nolan mentions the $36 trillion debt underpinning the euro as a currency, another $200 trillion unfunded liabilities, recent declines in the value of that currency, as well as the low to no economic growth prospects in the union as problems that will have real consequences.

But whether we believe in Nolan or not is not the issue. Though we shall come back to consider the matter of currency values and how they impact the equity markets and the viability/vibrancy of stock exchanges, I have had cause to consider the fate of stock markets around the world, with some serious questions in mind. Many stock exchanges have been complaining bitterly about delistings and relatively low liquidity lately. Stock delisting is a scenario where existing listed stocks choose to remove themselves by management decision, from being publicly traded, or are forced to do so because they are not meeting the requirements to stay listed. It used to be a great ambition for many companies back in the day, to get listed as a sign of success and maturity.

Today, it looks like the sentiment is the opposite. It is a major struggle to find new listings on many exchanges – and this is an international issue. The essence of this article is to find out what is happening, why it may be happening, and what countries like Nigeria can do to stem the tide and fight against this decline.

On the 6th of January 2025, the London Stock Exchange – one of the oldest in the world – saw the record delisting of 88 stocks. Many others in the world have seen such lethargy, with the US (New York) stock markets being a beneficiary in many instances. Yet many other companies have voluntarily delisted simply to remain as private companies. And what is more? I believe that even the successful exchanges today have reason to worry about the imminent future, which is packed with surprises.

The London Stock Exchange is not alone in its predicament. An article titled “The global supply of equities is shrinking – here’s what you need to know” published on the 24th of April 2024 by the World Economic Forum’s Emma Charlton states inter alia: “There has been a drop of nearly 75% of companies listed on the main market of the London Stock Exchange between the 1960s and the end of 2022… Similar data for public companies in Germany shows a drop of more than 40% since 2007, and in the US, there’s been around a 40% drop since 1996… London’s stock market has lost 25% of its companies in the past decade, according to Bloomberg, citing data from the London Stock Exchange that includes the main and junior markets”

Now, my wager. Could the following conjectures be true?

That there is a generational shift away from ‘slow’ investments such as equities (which are supposed to be naturally held long term as bet on the management of companies and the viability/competitiveness of their products or services which results in profits, dividends, rights issues and such like)? JPMorgan’s Nikolas Panigirtzoglou explains in the referenced article that ‘the alternative investments market, that includes hedge funds, real estate, digital assets, private credit and private equity, grew to $26.1 trillion in the first quarter of 2023, up from $25.5 trillion at the end of 2022. This means equity investments face lethal competition. Those numbers have grown in the last two years. The options open to a young, tech-savvy investor among Gen Zs and Generation Beta (born 2012 and later) has certainly ballooned out, with many of those options being rather unconventional.

That since there is a strong relationship between the confidence that investors repose in the underlying currency underpinning equities investment, and the investment itself, the mass movement to, and consolidation of the US stock market is a result of investors expressing confidence in the US dollar as a dominant global currency. However, the US dollar also has its own fair share of problems if we are to believe analysts like Greg Nolan.

Who is safe?

Well, I personally believe both opinions expressed above are true, going by observations of the market. Generation X and Z, and Beta folks (who are 40 years and below), and who were not around in the golden days of material (physical) share certificates may not be attuned to such ‘slow’ investments. We now live in the age of digitalised assets such as cryptocurrencies and non-fungible tokens. Some young folks even trade on foreign exchange, betting for example against the euro for the US dollar. These kinds of ventures are very risky and many have lost everything they have on them.

There was a recent revelation from a Nigerian comedian who lost a whopping $3.7 million (N6 billion) to so-called FX trading. The trouble with FX trading is that there are big hitters who trade using highly sophisticated robots and computers which are so fast that traders in a country like ours could never measure up. And indeed, many of these newfangled ‘investment’ types are no different from simple gambling, or worse. No wonder that at this point, sports betting has become an epidemic in Nigeria and other African countries, pulling in over N500 billion daily, according to reports – drawing in volumes that will make a decent stock exchange green with envy.

OPTIONS FOR NIGERIA

What are the options open to Nigeria as well as other fledgling exchanges?

HOME BIAS: It is evident that the stronger exchanges around the world are the ones that emphasise their own home advantage and have been able to create activity and demand for stocks listed on them, from within. USA, India, the Middle East exchanges (where their currency is pegged to the US dollar), and a few more, are examples. Therefore, the more we deepen the involvement of our own people in our exchange and create more confidence amongst our people in the local economy, the more successful those exchanges will be. For now, there is way too much unfounded pessimism, especially among our financial sector players than is good for that sector.

INNOVATION: The bond market was relatively boring pre-Paul Volcker years. A few young chaps in Morgan Stanley investment banking unit in the late 1990s revolutionised what used to be seen as a mere fixed income investment good only for pensioners, by creating innovative instruments that were more tradeable. I believe the equities market now needs to pull all the stops and ensure that every trick in the book being used by some of these other markets which are currently trending, is adopted and modified to fit. There’s a saying I find myself using quite often lately and it goes that ‘any entity whose rate of learning is less than or equal to the rate of change in its environment is fast becoming a dinosaur’. Extinct. Are we learning fast enough? In spite of the general slowness of equities investing around the world, it has become easier for young Africans to invest in foreign stock exchanges than in the one next door to them.

BACK TO BASICS: The fundamental essence of the capital market is to raise longer-term capital from the public, for companies to expand and stabilise. The stock market is there fundamentally to guarantee a secondary market for original owners of shares in companies to sell part or whole of their holdings when they desire, and for any other players to be able to buy off them in a dynamic process that brings interest and excitement to the market. Beyond the technical analysis of a share’s trajectory therefore, investment in the stock of a company is an investment in the fundamentals. It is about how good potential investors – big or small – find the company’s prospects and how viable and competitive its products and services are. It is also a call on the quality of management. These considerations are sacrosanct. Stakeholders in the capital market should bring back attention to these issues and ensure that investments are rooted in the fundamentals. We must continue to remind ourselves of the raison d’etre – investing local money in local industries to impact the general economy.

PSYCHOLOGY: The dematerialization of share certificates has brought many advantages viz to digitalize as much as possible, and to bring much-needed transparency. With digitalisation comes better tracking and less strandedness of investors’ holdings and dividends. However, dematerialisation also creates a psychological effect, whereby holding the shares of companies is no longer popular among less savvy investors. In the past, stocks were purchased by parents as gifts for their children… and held forever. The well-designed certificates had a tantalizing and emotional effect on holders. Now, that is gone, and with it, the ‘bottom’ of many markets – meaning that whatever is poured in simply fritters away as savvy investors constantly take profit. Is there a chance that some serious psychological research is conducted on this matter, to see what innovations can be brought in so that the now rather ‘lifeless’ idea of depending fully on online platforms and computers is somehow rejigged for something a little more exciting? In Nigeria, the traditional long-term equity holders are dying out. Who do we replace them with?

I may not have the right ideas, but my conclusion is that we do have a serious problem on our hands that requires us to brainstorm over the ways forward. It is also certain that the strength and prospects of underlying currencies are a consideration for the vibrancy of a stock exchange, but countries that have done a good job with building local resilience, domestic investment (keeping the money and the focus within the company) seem to be doing a lot better and are likely to maintain their stock markets – and by extension investments in their local industries – into the future. The US is one country where the financial markets are central to overall performance. The country will do everything to protect its financial markets. How far are other major countries ready to go? There are definitely lessons for Nigeria.