Stock Market Participation in Nigeria
People have considered online fraud a major problem in Nigeria for a long time now. One popular online scam, known as a 419, is to send an email, letter, text or social media message wherein the sender offers the recipient money. The offer includes a request to help transfer money in exchange for a monetary reward. Although people now practice this scam worldwide, it originated in Nigeria.

As a result, many Nigerian stock investors have a difficult time opening stock accounts. Part of the account opening process involves selecting their nationality. Oftentimes, once they select Nigerian, they flag the account without opening it. One way people try to boost their assets is by investing; however, this effectively cuts Nigeria off from the world stock markets. Nigerians continue to face exclusion from the rest of the world and its stock markets. Of African countries, Nigeria makes the most from its movie and entertainment industry and is the top in the continent. It has also become a popular place for venture capital activity and the creation of startups.

Increasing Stock Market Participation in Nigeria

Since Nigerians are not able to open a stock account on these trading platforms, Chaka created a new platform. Chaka has a design to meet Nigerians’ needs; however, it is also open to everyone. It enables Nigerians to participate in foreign stock markets, including those in the U.S., U.K., Japan and Australia. One of Chaka’s drivers is to break down global investment barriers that block Africa from the rest of the world. This makes it easier for foreign investors to invest in Africa and vice-versa.

The platform works in partnership with DriveWealth, where Nigerian investors receive an affordable way to invest in stock markets with fractional shares. They only need an email to sign up and they start with a minimum of 1,000 Naira (or $10 USD) in their digital wallet. They can then begin investing in over 40 countries and over 4,000 assets, including major companies such as Google and Apple. Local trades cost 100 Naira and global trades cost $4 USD. Although the exchange rate of the Naira does fluctuate often, Chaka solves this problem by converting it to USD. The rate is set at 9 AM and continues until 2 PM for all transactions.

Security and Regulations

Chaka is locally and internationally regulated and provides bank-level encryption for all data and transactions. A local brokerage firm provides regulations, working with the Nigerian Stock Exchange (NSE), Central Securities Clearing System (CSCS) and Nigeria’s Securities and Exchanges Commission (SEC). A U.S. brokerage firm that follows the regulations of the U.S. Financial Industry Regulatory Authority (FINRA) and SEC provides international regulations. Advanced Encryption Standard (AES) protects all website traffic and keeps all transactions confidential.

Users

Currently, many Nigerian stock investors are looking for foreign investment opportunities to maximize potential profit. Chaka has become the go-to trading platform for Nigerians, causing its user base to skyrocket. Chaka already has between 1 and 2 million users, a number which is growing daily.

Chaka’s future plans include branching out to other investment products from its app, such as mutual funds, fixed income products and cryptocurrencies. In a five-year partnership with NASDAQ and Airtel Africa, it will be upgrading its platform to include more listings and improve digitization. It has also received an undisclosed amount of pre-seed funding from Iyinoluwa Aboyeji, but it has not provided the exact amount.

Chaka has also partnered with DriveWealth, a company that provides Chaka with the access that it needs to U.S. markets, as well as a series of digital products. DriveWealth also allocates Chaka with some of the best technology for Nigerian stock investors to use in international trading. Thus far, the merging of the two technologies has been simple. Further, Chaka believes the partnership will last for a while. Another organization that plans to help Chaka is Citi Investment Capital Limited (CICL), which is a local stockbroking firm that can make brokerage transactions easier. In return, Chaka has assisted CICL with improving its digital products. These combined efforts will aid the country in accessing foreign stock markets and provide more opportunities for stock market participation in Nigeria.

Nyssa Jordan
Photo: Wikimedia Commons

stock_markets
The recent collapse of the Chinese stock markets has been tumultuous. Millions of Chinese middle-class citizens were caught up in the fervor; many of the stock-buyers have been Chinese without high school diplomas. Many observers in the west had feared that the meteoric growth of the stock markets in China was unsustainable. In 2014, the Shanghai Composite Index rose 21 percent in one month alone — a warning sign to many that this type of growth could not continue forever.

Since the beginning of the falling stock prices, at least 3.2 trillion dollars in value has vanished. The bubble was seemingly inflated — in part with government encouragement — with lax policies put in place to encourage further investment in stocks. Many people began to pour savings and accrue debt in order to pump more money in the over-valued stock prices. The government’s role in encouraging the bubble has now led to a loss of face for Chinese leadership and policy makers.

The ramifications of the Chinese stock market collapse could be widespread. A large fraction of the investments made were done not by large businesses or businessmen, but by middle class urbanites and even rural villagers. Much like the housing bubble in 2008, a tremendous loss in assets for middle and lower class Chinese could be hugely detrimental to the country. In light of the fact that the Chinese economy has been attempting to transition into a more consumer-based economy and the slowdown in growth in recent quarters, this financial crisis could be a major setback in China’s economic ambitions for the future.

The loss of value for stocks owned by every-day Chinese citizens means that demand would suffer and begin the cycle into lower economic health and greater uncertainty about the future of the markets. In general, an economic downturn is bad for everyone, from the most impoverished, to the well off. The poor in China will almost certainly suffer more, should the economy take a turn for the worst.

The Chinese Government has taken strong steps towards avoiding a complete collapse in stock prices. Pouring money into the teetering markets, the government is attempting to push back against the tide of sellers and avoid what many consider to be inevitable. Forty percent of stocks have stopped trading in an effort to stop the bleeding prices, but many argue that this is will do little. Market corrections will occur regardless — the bubble has already popped.

The secret is out — the majority of these unsustainably growing stocks belong to companies who are simply not worth even close to the price tag. Many of these Chinese companies have suffered huge blows to their reputation and legitimacy. Stopping trading is more likely than not, a desperate measure to allow for some leeway and time to think. The market is no longer in a psychological craze, and all the freezes will do is delay the inevitable market corrections.

The real question now is, how much value will be lost and how much will this hurt the middle and lower classes in China?

Martin Yim

Sources: New Yorker, Bloomberg 1, Bloomberg 2
Photo: Gbtimes