- NASS invasion’ll affect stock market – Analyst
Domestic transactions at the Nigerian Stock have suffered a setback, declining N39.95billion from N125.32billion to N85.37billion at the end of June 2018, a 31.87 per cent.
This followed pre-election uncertainty which may have dampened the mood of foreign investors in the capital market.
Further analysis of the domestic and foreign portfolio participation in equity trading in the market also showed that foreign transactions reduced by 46.92per cent from N192.95 billion to N102.41 billion within the same period.
There were 22.71 per cent decrease in foreign inflows from N62.06 billion in May 2018 to N47.96billion in June 2018, and a significant reduction in foreign outflows which reduced by 58.40 per cent from N130.89billion to N54.45billion within the same period.
Historically, statistics have shown that the period preceding elections in Nigeria experiences the highest exit of foreign investors from the market and thus, we do not see a deviation from this trend with the upcoming elections
Meanwhile, some analysts and capital market observers, who spoke with our correspondent, maintained that despite improving macro-economic fundamentals and better earnings outlook for listed companies, valuations of counters on the exchange have continued to decline as investors shun emerging and frontier markets, particularly Nigeria on the back of heightened political risks.
A renowned economist, Bismarck Rewane, said he was sure that from now onwards, the prices of equities would not come back to normal until the elections are over and the prices of the stocks begin to regain.
According to him, “everyone knows that it is a four-year cycle. The investors have already discounted the politically-tensed situations in their risk premium. What would really affect the market more is the international interest rate, like that of the United States.”
Managing Director, Global Investment Company Limited, Mr. Raymond Adimora, said the invasion of the National Assembly complex by some officers of the Department of State Security last week, was a bad omen which portrayed the country in bad light, and created negative perception for the capital market.
“The action was uncalled for; the international communities will not take Nigeria serious in terms of doing business. Investors will certainly be skeptical in bringing in their funds,” he said.
Adimora explained: “The perception is that our democracy is under threat and especially, Nigerians are apprehensive. Investments and investors are averse to uncertainty. In fact, any perceived dictatorship in an environment automatically switches players to cautious mode.”
But an analyst, Mr. Abayomi Okunola, in his submission, said that the market confidence had been low for long due to economic issues, stressing that the current political stand-off could only worsen it.
A stockbroker and fund manager, Mr. Ademola Adeoye, said: “Historically, statistics have shown that the period preceding elections in Nigeria experiences the highest exit of foreign investors from the market and thus, we do not see a deviation from this trend with the upcoming elections.”
Adeoye observed that the exit of investors from the capital market towards the end of first half of 2018 has dampened the mood of the market and as such “we expect sentiments to remain depressed in the second half of the year.”
He, however, cautioned that although the market recorded impressive growth in the first quarter 2018, it still has challenges to contend with at the end of the year, noting that developments in the international oil market, liquidity level in the foreign exchange markets and realignments in fiscal and monetary policies will determine trading and performance of the market at the last quarter of 2018.
Ambrose Omorodion, the Chief Operating Officer, InvestData Limited, advised that investors should target emerging companies with strong fundamentals and undervalued stocks to manage risks of elevated valuations.
Omorodion added that investors should monitor the market very well to avoid being taken unawares by the exit of foreign portfolio investors without notification.
Expert predictions for 2018 second half
According to Afrinvest, “We do not envisage any shock in the global oil market, however, possible tensions in the oil-rich Niger Delta as the 2019 general elections approach may pose a threat to earnings. For downstream operators, we maintain a conservative stance on profitability in the second half of 2018.
“Coalitions between warring political factions to produce a formidable presidential candidate has heightened fears of political instability and thus, we expect trading activities in the equities market to remain weak in H2’18 as investors are likely to stay cautious pending the election outcome.
“However, we do not expect to see the extreme bearishness observed in the 2014 pre-election period which was exacerbated by the drop in crude oil prices. Hence, despite our expectations of heightened cautiousness in the equities market in H2’18, we believe that performance during the period will swing between marginal gains and marginal losses as opposed to the steep decline observed in 2014.”
Sectoral Performance
Insurance sector is the highest gainer, with a return of 7.9 per cent for H1:2018. The sector equally enjoyed the rally at the start of the year – garnering gains up to 15.7 per cent at the rally’s peak largely driven by price appreciation in Custodian and Allied, NEM and Mansard, while earnings and profitability across counters in the sector were largely positive in the first quarter of
2018.
“We expect earnings to come in stronger in H2:2018 following the improvement in the economy and increasing disposable income. The sector feeds largely on the performance of the economy and grows at a faster pace during an expansion; hence we are optimistic of a positive performance in first half of 2018,” said FSDH Research and Investment.
FSDH Research and Investment said although the sector still underperforms relative to inherent potentials, “we believe increased spending ahead of general elections will buoy total revenue in the second half of the
year.”
