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Expert Calls For 5% Daily Price Limit For Banking Stocks

Professor Uche Uwaleke, Professor of Capital Market has urged the Nigerian Exchange Limited (NGX) to designate banking stocks as Systemically Important Stocks (SIS). Uwaleke in a statement said this had become necessary to make the stock market more resilient, curb the current speculative frenzy, and dampen any extraordinary volatility swings on the share prices of banking stocks in particular. Uwaleke, who is also the Director of the Institute of Capital Market Studies at the Nasarawa State University Keffi, called on NGX to proceed to narrow their daily price limit from 10 per cent to five per cent in the meantime while the price limit for other regular stocks is left at 10 per cent.

He said: ”To make the stock market more resilient, curb the current speculative frenzy, and dampen any extraordinary volatility swings on the share prices of banking stocks in particular, the NGX is advised to designate banking stocks as Systemically Important Stocks (SIS) and then proceed to narrow their daily price limit from 10 per cent to five per cent in the meantime while the price limit for other regular stocks is left at 10 per cent.” Uwaleke said if the NGX finds a reason to adopt this recommendation, it would not be the first to apply differentiated price limits as a market stabilisation mechanism. “In China’s Shenzhen Stock Exchange (SZSE) for example, this limit is set as 10 per cent for regular stocks and five per cent for stocks designated as special treatment (ST) stocks. “Studies have shown that by constraining prices, wild intraday price swings are prevented from occurring, which, in turn, translates to lower market volatility,” he said.

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Uwaleke stated that against the backdrop of the likelihood of limited forex gains on the part of quoted banks following exchange rates unification as well as downside surprises in the stock market in 2024, investors would be well advised to follow the time-honoured cautious path of diversification, hedging, and long-term (DHL) approach to investments. The professor noted that the Nigerian stock market had been exceptionally bullish recently with share prices soaring since the start of 2024.

Source: newtelegraph

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