COVID-19 pandemic and the slump in the price of crude oil remain the biggest risk to the global economic growth and stability in 2020. As weighed on global financial markets it is expected to impact local and global businesses significantly.
The International Monetary Fund (IMF) projected a negative growth of 3.4 percent this year for the Nigerian economy as the Nigerian oil-dependent economy has been significantly challenged by these factors.
In a chat with Aruna Kebira, Chief Dealer, Global View Capital Limited, the stock market guru and seasoned economic expert shed light on the impact of COVID-19 pandemic on Nigeria economy, plight of the equities market and entry strategy in equity investment. Excerpts.
I can confidently say this is the first time we are experiencing a thing like in this generation, where all business and economic activities are under siege of coronavirus. How well would you say Nigerians have coped with this pandemic?
We Nigerians are a dynamic people and can adjust to changing situations in minutes. Though it was tough in the first few days but as the realities on ground began to dawn on us, we have to adjust to the ruling situation.
Apart from those who went out despite the stay at home order, purportedly in search of what to quench their hunger with, I think majority adhered strictly to the order and stayed safe.
On the part of the government, would you say the whole activity is well handled or managed?
There can never be a better management in an emergency like this. Covid-19 is a novel pandemic which no nation expected and/or waited for.
The Government managed the situation within the ambit of the available information and both personnel and financial resources.
What else could they have done than set up isolation centers, locked up the epicenters; educate the people on how to keep safe, washing of hands, sanitizing our hands and the use of nose masks.
Let’s talk about our market, in honesty, I had expected the market was going to suffer greatly in the face of this disaster but it seems this market has been relatively stable. How much do you think the market can withstand this hard time.
The market as I always said have its own mind. It thinks independently of the concerted thoughts of analysts. Anyway, we have heard of palliatives, bailouts and debt forgiveness stimuli prevalent globally of which Nigeria is also and will continue to be a recipient.
The market believed that government spending will somehow trickled down to it and the world crude oil price imbroglio between OPEC and OPEC+ members have been receiving serious attention and have culminated to the 9.7mbd cut back that began on Monday May 4, 2020. Oil price is improving.
On the other hand, because of issuers’ consensus adoption of holding their AGMs virtually and by proxies, they were in position to pay dividends that turned the average investor liquid. The state of reinvestment of dividends, more so that stocks were cheap, and coupled with a good Q1 2020 outing, saw market participants taking positions in fundamentally sound stocks.
You know that when the market becomes bullish, it pulls along even the dregs of the market.
Judging by the unaudited Q1 results of companies that we’ve seen in the recent, how well do you think these firms can weather the current and pending storm.
To be candid, the market and the analysts were not expecting most of the performances we saw in the unaudited Q1 2020 financials. It furthers buttressed the point of dynamism on the part of Nigerians I have just talked about.
The takeoff flight of FPI used to be much dreaded and detrimental to the wellbeing of our local market. Agreed that the involvement of foreigners is a boost but don’t you think this time and season is teaching us how to be locally dependent, considering the NSE March FPI reports.
Most of the FPI funds are hot and they are bargain hunters. They have at disposal sophisticated tools of analysis. They trot the world looking for where they can get value.
As a result of their in-depth analysis and the tools at their disposal they are able to tell when the market could turn and how long the turn will last.
Their objectives are stated ab initio and once that is met, they take their loots and scram.
So it is not a surprising thing to see them exit the Nigerian Market.
One other thing they try to curtail is exchange risk, when the issue of Covid-19 emerges, and nations were shutting down, they understand that economies are going to contract, some entering into recession or depression as the case may be, so they take their money in the currency they have confidence in, the US Dollar.
Let us holistically look at the economy; there are projections of how bad things could go going forward, especially post covid-19. Could you in your own view and opinion paint a picture of what to expect?
Various analysts have various emotions; some are pessimists while others are optimists. The issues of macroeconomic variables, analysis, predictions and outcomes are cumbersome. The predicted after effect of variables change may not turn out to be so.
I am of the believe that the world oil price will do better than as it is if the parties involved in the production cut back keep to their words.
And when oil price rises above $40/pb, I don’t think the gloomy situation so painted will come to pass.
But the market may be affected by the release of Q2 financials, most issuers have been on a lock down second month running in this quarter.
Which sector or sectors of the economy do you think is worst hit or counting gains of this pandemic? Are there specific stocks to watch or to be careful of this season?
The manufacturing sector of course, because there is a possibility of working from home in other sectors. Even in an automated manufacturing process, the process still requires the interface of a human being to function well talk less of those operating in a labor intensive process.
You see, Nigerians Banks are like warri indigenes, they don’t carry last. The banks will first be the net beneficiaries of any monetary policy of the government including government spending.
As an expert and an astute trader what would you be advising the investing public as regards to decision on stock trading?
While I will recommend that people should target the cheap fundamentally strong stock, caution should also be the word as there is no clear direction of economic activities nay, the capital market.
Finally, many potential and existing investors still don’t understand trading remotely from home and as such not currently participating actively in the market. Can you please shed more light on this subject?
The management of the NSE in their magnanimity opened up the trading engine to market participants to enable them to execute trades remotely.
There are two types of remote trading, the X-net and the OMS.
The X-net is an extension of the X-Gen made available to stock broking firms, it is the same as the trading engine on the floor but installed in the offices of stock brokers. As a result of the distance between the original site and the stock brokers’ offices, there is usually a delay in the real time activities in nano seconds.
The OMS-Order Management System is a stock broking firms specific, designed by the vendors, tailored after the X-Gen and available on the servers of the firms, but with a link to the trading engine.
The firms are at a liberty to allow clients orders to access the market straight from their devices called Direct Market Access or routed through their own portal that will need an officer intervention before it is sent to the trading engine.
In their continued magnanimity too, the NSE management has also extended another connection to the X-Gen to the stock broking community via VPN on laptops.