The Nigerian equities market having experienced huge losses in All shares index and market capitalization in the first quarter of 2019, political risk concerns were said to have sustained the bearish trend throughout that period, making the market to close on negative note.
But since then, the sustained price decline has not abated, given the conclusion of the presidential elections, which reduced the political uncertainty.
However, it was expected that the market would witness a positive performance in equities’ price gain, as the release of corporate earnings by some firms for the first quarter ended March 31, 2019, was expected to stimulate demand for stocks. But reverse has been the case, as stock prices continue to depreciate, consistently.
According to some market operators who responded to interviews by Stockswatch, they say investors are not in a hurry to return to the market despite the conclusion of presidential election. They argued that only investors whose focus is long-term will not put so much emphasis on political risk because they know the market would bounce back once a president is sworn in May.
Some of the Analysts say that the current performance of the market does not come to them and other stakeholders as a surprise because they had projected that the market would stabilize and recover in the second half of the year.
Mr. Biodun Ilaka, Stockbroker/ Analyst from Traders Trust Ltd, in his comments over persistent drop in equities’ prices said, ‘‘Yes, the prices are going down because of the problem of liquidity. There is no money in the system, and if there is no money, people will have to prioritize what they want to do. Investing in the market is a function of demand supply.
There is low savings, and you cannot save if you cannot hit. The solution is for the government to put more money into the system, as they are trying to do that, they should also try to put more money into workers’ pocket and they will be able to use part of it to buy shares.
My expectation for the first quarter is that it will be good. The government has putting a lot of money into the system, in terms of infrastructural development, the government has been spending a lot of money, so I hope that Q2 will be better and investors will be able to trade with their money.’’
Mr. Niyi Usman is a Stockbroker/ Analyst: ‘‘The closure of the register of each company’s books is responsible for the down trend of prices of some firms. But there is this technical aspect of the books of operators which the investors may not really know of, and does affect the prices of some equities on the date the closure is affected.
If for instance, they give dividend out along with the closure of books on a certain date, the dividend will be deducted from the account of the company and this would affect the equity price of that company effective from the date that deduction was made. It is a bit technical; you may not understand it.
If and when investors see the new price after deduction has been done, investors will be alarmed over the new pricing of that particular stock. What has happened in this case, is that the drop-in price of that particular stock can be traced to the dividend that the company paid out. For instance, let me give an example with Zenith bank. When the bank gave N2.50k as dividend, on the day of the closure of the company’s register, the N2.50 was deducted and the equity’s price dropped.
The truth is that Zenith has not lost N2.50K, but the dividend payout which has been deducted from the company’s account is now reflected in the pricing of that stock. This year the company gave a good dividend, which goes to show that the company is doing very well.
Another factor to consider for the downward slide of prices is that, over 60% of our trade comes from the foreign investors, the local people have not enough money to invest, because after consumption, savings the remaining part of one’s income becomes very small.
Then again, the influence of interest rate on the economy is another very big issue. The Central Bank’s Monetary Policy Committee’s recent marginal reduction of interest from 14% to 13.5% is considered by many investors as being too small and inconsequential. So, a lot people still prefer to remain in the fixed income investment market rather than come to the equity market.
Our expectations were that the interest rate can go to 12% or 11.5%, but that is not the case right now. Besides all these factors, we cannot also discount political factors, as we had inconclusive election results all over the place soon after the elections, this can give rise to the uncertainty that we see in the market.
My own solution is patience. I believe that by June, this year or in the second quarter of this year the market will stabilize, and things will get better. Right now, investors are waiting to see the caliber of people the president will bring into his cabinet as ministers. If he brings in economic professionals who knows their onion, that will send a positive signal to international investors that the time is right for them to come in.
My general impression about the first quarter is that the market is on course and is doing well. I know that market watchers and investors alike will be disappointed over sliding prices, but we must realize that the market cannot collapse completely. The market goes up and down.
People that understand how the market works will takes advantage of the present low stock prices and take positions in the market. These categories of investors believe that the current market prices are good for them. The up and down movement of stocks prices allows current investors to exit market for fear of losing the gains on their investments, and this create opportunity for new investors to enter the market and avail themselves to the down trend in stock prices.
Dele Sanusi is a Stockbroker/Analyst, in response to the bearish trend, he has this to say, ‘‘Yes, the first quarter results of most listed companies are out already. Some of the companies have performed very well, some of the financial results are good, while some are not so good.
But you should know something that we’ve just concluded election and we are still in transition period and investors are still trying know the policy direction of the re-elected president, before they can think of investing in the market.
I think, this may explain the reason why some of these investors are taking their money out of the equities’ market and putting it in the fix income market.
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The solution to this trend is that the federal government need to come out with the right policy, also if you look at the way we channel our budget is very important. We should spend more on capital expenditure and this will encourage investors to bring in their funds and this will stimulate our economy.
For the first quarter we may not see excellent results being posted by companies, because if you look at the economy as whole, there is a lot of uncertainty which existed before the elections and that uncertainty is still dominant, as investors are trying to figure-out the overall direction of the market. So, in the face of all these, we are not expecting the companies to release any fantastic results, as the first quarter results have started coming out.
Mr. Sanusi further explained that the bearish trend that we see signals that all is not well with Nigeria’s economy. However, he said the market operates in cycles and the fact that a company’s share price drops do not necessarily mean that it has gone under.
According to him, ‘‘It only lost the value of some shares and can bounce back once there is positive information. This is a good time to buy shares as prices of many blue-chip companies are trading below intrinsic values and they have strong potential to bounce back,” he said.