Attitude of Investors to Capital and Money Market Investments Before and After Financial Crisis: Evidence from Nigeria

Introduction

In the second half of 2008, the world experienced financial and economic storm and a serious infection consequently took hold of financial markets across the globe. Business priorities shifted from growth and leveraging up profits to issues of survival and preserving core assets and competencies until the good times return. Investors also lost money as the value of securities crashed, which as a result had the inherent potential of changing their perception about investments and overall financial behaviour.

Starting with the US sub-prime mortgage crisis, a serious infection took hold of financial markets across the globe: equity and real property value slumped; banks and other intermediaries turned to governments to ante up much-needed liquidity and take toxic debt off their hands, bonds and other debt markets effectively closed down and banks begun to turn off the credit tap. Business priorities have shifted from growth and leveraging up profits to issues of survival and preserving core assets and competencies until the good times return (Barbara & Jing, 2012; NAIFA, 2011).

The recent economic meltdown had a devastating impact on the world economy, especially on the financial system in most countries, whether developed, emerging market or developing countries. The effect of the financial crisis is still being felt all over the world, as government in different nations of the world continue to introduce policies to revamp the economy (Sanusi, 2010). In Nigeria, the stability of the financial system was seriously threatened, which prompted the intervention of the government regulatory agency for financial institutions-the central bank of Nigeria. The crisis which manifested itself globally in the form of liquidity and credit crunch, breakdown of confidence in the banking system, de-leveraging and banks inability to improve capital adequacy, weak consumer demand, and fall in global output, affected Nigeria through both the financial and real (trade, remittances and aid) channels. The undiversified nature of the Nigerian economy and the high dependence on exports of crude oil as well as foreign capital inflows compounded the impact of the external shock arising from the crisis (Sanusi, 2010).

Also, the financial crisis affected the performance of the Nigerian capital market. As evidenced by the wane in the All Share Index (ASI) – Nigeria’s market index, market prices of securities crashed significantly. Investors lost confidence in capital market investments because the number and volume of deals reduced. A look at the world economy shows some evidences of gradual recovery.

The United States is still going through its worst employment recession since World War II, and Europe’s GDP has not returned to pre-crisis levels, but global output has grown 15% since 2008, and world trade is up more than 12%. The gradual rebound is attributable to the well-timed response engineered in 2009 by the G-20. The recovery soon demonstrated that the global economy had more than one engine. This gave the US economy time to heal, and even made it possible for Europe to experience its own crisis without triggering a generalized downturn (Jean, 2013). According to projections by Homi Kharas and Geoffrey Gertz of the Brookings Institution, there now are 700 million more people with $10-100 per day to spend than there were in 2003. Moreover, what they call the global middle class is expected to grow by another 1.3 billion over the next ten years. So there is obvious potential for a major rebalancing toward consumption-led growth in the emerging and developing world.

In the light of gradual global economic recovery from the effect of the financial crisis in recent times, it is important to assess the attitude of investors to capital market instruments (such as equities, debentures, bonds, stocks and other long-term investment instruments) and money market investments after the global meltdown. It is against this background that the research intends to comparatively study and analyse the attitude of Nigerian investors to investments before and after the financial melt-down. The topic investigates if there are significant changes in the attitude of investors as touching market trends and seasonality changes over the period of 1960 to 2011 in Nigeria.