Facts behind Unabated Market Decline after General Elections

The Nigerian stock market had closed in the red in January of 2019. Investors and other market watchers had hinged such performances in January and the entire 2018 on fears of negative possibilities in the then coming general elections. The month of February however closed in the green thus signifying a measure of hope. The expectation was that the general elections, if completed successfully, will in turn bring about a bullish session in the Nigerian equities’ market. Downward trend however remains unabated even after the general elections with an estimated decline of over N400billion in market capitalisation weeks following the announcement of the presidential election and closely followed by the governorship and other elections. As at date, gains recorded in the month of February had been wiped off thus leaving the market in negative year to date performance despite, as earlier stated, the successful completion of 2019 elections upon which fears and attendant losses in the prices of stocks of the Nigerian Stock Exchange were earlier hinged. Stockswatch sought further opinions of market operators and investors alike. opinions were largely positive.
Despite current YTD negative return, some capital market Analysts say that expectations remain high as investors anticipate positive earnings from quoted companies later this month. Buying activities early April is subsequently possible though before then, investors continue to maintain bearish outlook over the near-term. They further explained that sell-offs witnessed in some blue chips like Dangote Cement Plc, Guaranty Trust Bank Plc and Zenith Bank Plc led to the reversal in prior gains in the All Share Index

 Dele Sanusi is a stock broker and Analyst. According to him, ‘‘Yes, it is true that the market has been going down soon after the general major elections we’ve had this year. As the market is declining, it goes to show that investors are not comfortable with trends in the market, and that the market has failed to meet their expectations. He opined that investors are probably at loss over what to expect from the APC government. The market is sure yet to know the economic policies that the Buhari government will introduce, so in the interim, investors are flooding to the fixed income market, moving out their investments from the equity market.

He further stated that information reaching him indicates that fixed income market was over-subscribed with estimated N200billion, which goes to show that investors are sceptical of government real intention in the capital market. They are not certain over what becomes of the market, so investors are now maintaining a-wait-and-see attitude.

Election risk goes side by side with post-election risks. If you take a look at the market, you will find that the prices of most equities right now do not reflect the true fundamentals of many companies. The pre-election risk is still at play, as many investors are uncertain of the new policy direction of this government after the general elections.

My advice to investors right now is for them to take advantage of the low stock price and place their money in those companies with good fundamentals, as well as those that regularly pay dividend so that they can make good return on their investments.

I believe that there is still a lot to hope for in the market. What remains is that the federal government should come up with policies that will drive the economy, and by extension the capital market, then investors will have course to smile again. If investors see policy changes, they will bring back their capital.

Uzum Paul, a Stockbroker/Analyst responding to the same question of falling stock prices explained it this way, ’Before the last elections, there was this general expectation among investors that there would be change in government that would change the current economic situation such as open up the private sector and stimulate growth. But foreign institutional investors were disappointed to see that the incumbent was still able to retain power after the presidential election.

So that means that there is continuity in government, and that continuity means that what we have been seeing over the last four years will continue. Right now, the economy is skewed towards a government driven economy, rather than a private sector driven economy. There are policies that have been thrown up by this government which have made operations in the equity market very challenging.

Certain policies have to be put in place to make the investing public have confidence in the investment environment and the economy, but unfortunately, this has not been the case. A case in point is the MTN over $8billion transfer saga. Such case gives the wrong signal to any would be foreign investors.

Another unfortunate issue was the Stanbic IBTC case with the Financial Reporting Council. With all these incidences, wrong impressions are created in the minds of foreign investors concerning right attitude to the private sector investors.

From the appointment of ministers, Nigerians and foreign investors alike will begin to see what direction the economy will head. The Nigerian economy has a capitalist orientation, the policies of the present administration has a socialist orientation. For most private investors, the capital market is their own sector.

You notice that few days before the general election, there was a bullish trend, this can be traced to investors’ expectation that what has obtained on the economic front over the four years might be coming to an end, but when the presidential election result came out, those hopes were dashed.

Atiku during the campaign had promised a private sector driven economy, just as it was during the Obasanjo Administration. He also promised to sell the NNPC, which is considered to be badly managed.

With all these promises, many institutional investors expected that with Atiku Presidency, there would be a level playing field for all investors, including huge inflow of foreign direct investments. But majority of investors are holding back, because they are not sure of what new policy direction will be.

We cannot under-estimate the role of these foreign investors in our market, as they constitute over 50% of the portfolio investment in our market. 80% of trade volume in our market is done by them. If they go, the impact on the market is very glaring. This is because they bring liquidity and depth to the market.

With such high level of involvement in our capital market, we cannot downplay their importance. Even for the PFAs, they always want to know what this class of investors is doing. When they see that these foreign investors are around, their presence usually attracts the PFAs to the market, but if they notice that they are backtracking, they immediately develop cold feet. That alone underlines their importance.

Speaking on hopes for the market, Uzum said, ‘‘we’ve seen some companies posting good results, we’ve seen results from Zenith, GTBank, which are the leading banks in Nigeria. We’ve seen wonderful result from Dangote Cement riding on the back of tax holiday. This is the first time we’re seeing Dangote giving dividend as high as N15. While Nestle gives as high as N23.

Even in the face of all these good results, the perception about the Nigerian economy still carries big question mark. Where is Nigeria going? The nation’ GDP last year was below Africa’s average. What we are seeing this year is just around 2.5% economic growth rate forecast. Global forecast, such as IMF is giving just 2.3% growth forecast for the economy.

The global economy is expected to grow by 3.3%. If institutional investors see the global forecast in comparison with forecast for Nigeria, what will be the motivation for institutional foreign investors to come to Nigeria when the economy is struggling? Investors will continue to look at the market until they start seeing signs of recovering.

However, investors are not totally out of the market, they are still investing. The current situation shows that they have scaled down their investment in the country, pending improvement in management of the economy. They are trying to be careful, ensuring that they are not making any mistakes.

Mr. Uzum also advised investors to go for long term investment at this time. According to him, ‘‘this is the time to do long term investment. The investor has to be very selective and stick to those stocks that pay good dividend. Any stock not paying good dividend should be sold off. Such strategy will compensate the investor who might have lost out in capital gain or opportunity cost.

Azeez Gbolahan Bello of Golden Securities Limited, was upbeat on market expectations. He expressed the confidence that the market would rebound as the dust generated by the general elections settles.

He advised investors to pick stocks that would stand the test of time. He mentioned stocks such as Dangote cement, Nestle, Zenith and GTBank among others, as companies to stake their money on.

Specifically, Bello explained that the continual exit of foreign investors as well as less appetite of local investors, amid an increase in bond yields has exacerbated the decline in the market.

This, according to him, is because the policies of the present government have largely scared away foreign investors with the exchange rate margin between the Central Bank official rate and that of the parallel market significantly wide.

‘‘Besides, foreign debts are just skyrocketing and more than half of government revenues are currently being used to service interest payments. In addition to these, Nigeria has been recently classified as the poverty capital of the world with the rate of unemployment skyrocketing beyond expectations.

‘‘The easiest way out for the revival of the market is for the local investors and the general public to express their renewed interest and confidence in the Nigerian economy, by investing in the market. No foreigner will do it for us, except in cases where returns are overwhelmingly attractive.

‘‘Yes, foreign investors are needed to grow the market, but the indigenes need to take advantage of the current cheap price of stocks in the market and enhance both their personal economic circumstances as well as that of the nation, with positive returns in the not-too-distant future.’’

 

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