Published On: Sun, Jun 3rd, 2018

Bears maul Bulls as investors take flight

—Analysts fear more loses

By OKEY ONYENWEAKU

With Nigerian Stock Market Index turning negative growth after 19 weeks of positive year to date yields, investors are becoming increasingly jittery over the markets fortunes. For the first time in over four months the NSE market yield has dropped to levels similar to that of the South African Johannesburg (Jo’burg) Exchange (JSE). Profit taking by major global equity funds pushed the Nigerian equities market into a tailspin leading the market to slump from a beefy 17 per cent at the end of the first quarter of the year to a skinny and shrinking -3.36 per cent at the end of last week’s trading. In the last one month, the market has tumbled by about a whopping -7.67 per cent and lost -12.06 per cent since March.

The Nigerian Stock Exchange

A growing number of financial experts agree that while nobody can predict the market with certainty, there is a consensus that the Bears may dominate the market for a while longer suggesting no good news for those who had hoped for better yieldson their investment bymid-year. Unfortunately, the market’s major Index, the All Share Index (ASI), which peaked at 44,912.53 in January 2018 is growling a Bearish tune, on the backdrop of sagging investor confidence. As at May 31, the market had dropped to 36,816.29 points from its peak earlier in the year.

Although there are claims that no one particular challenge is responsible for the expected weakness of the market in the short to medium term, investors are profoundly worried.

In fact, analysts have fingered a few uncertainties in the polity that might impede market growth until the 2019 elections are over.

The impending election of 2019 appears to have created fears in investors who are not sure which Party will win and form government. There is no certainty that the election will be crisis free. Nobody is also sure whether government policies will be sustained after the election depending on which Party emerges winner.

Already the level of insecurity in Nigeria is escalating every other day. There is heightened tension as Fulani Herdsmen continue to kill farmers and other innocent persons every day. The latest killing which has caught the attention of the world is the recent killings of Catholic priests. The nefarious activities of the Fulani Herdsmen are almost drowning the killings, Maiming and kidnappings of the religious sect, Boko Haram.  Whereas the security agencies are overwhelmed by these daredevils, there is increasing kidnap cases, ritual killings among other pockets of disaffection from other local groups against the government.

Which investor could be attracted to a country with such high -country risk? Market observers have asked. Already, investors have began to pull out their investments and looking for safe havens to move their funds.

Delay in signing budget appears to be slowing economic activities given that it is mostly government spending that creates most of the liquidity in the system, especially in the developing economies. Most businesses appear to be waiting to know the direction of the economy to make investment commitments for fear of losing their hard-earned money.

Recently, markets in the developed economies are also becoming attractive with the increase in rates. With the United States of America’s Reserve Bank mulling further raising of rates that is already attractive at 0.50 percent, investors are guaranteed of reasonable returns with minimum risk in the country that is relatively more stable than Nigeria.

Foreign investors also fear that the Naira will further weaken as more money is pumped into the system for electioneering campaign. This may affect the conversion rate and cause them to lose money instead of getting better returns.

Chief Executive Officer, Cowry Asset Management, Mr. Johnson Chukwu has cautioned retail investors to tread with care given that Foreign investors are shifting their attention to other regions where there are better investment opportunities given the countries unstable macro-economic environment.

He explained the decline witnessed in Q1’18 was as a result of the shift from equities to fixed income securities by Foreign Portfolio Investors, FPIs, who have started exiting the market following the unstable macroeconomic environment.

“The FPIs had taken their position in 2017 in the equities market and that was why we saw the 42% appreciation of the market, but in the Q1’18, FPIs invested $701.61 million in equity, $335.88 million in Bonds, $3.527 billion in money market, while total capital imports stood at $6.303 billion, he stated

“So the equity market was sluggish in Q1’18 as foreign investors began to repatriate their dividend and also put demand pressure in the foreign exchange market in response to declining yield on government securities’’, he also observed.

Similarly, Acting Director General, Securities and Exchange Commission, SEC, Ms Mary Uduk, who was represented by Mr. EffiongEkpeyong, at an event advised retail investors to opt for Collective Investment Schemes, CIS, to diversify their investments.

She said “Nigeria is a mono product economy as this has made the stock market very volatile. To this extent, retail investors need to spread their demand for stocks in various classes by patronizing mutual funds,”

Looking at the market performance over the years, observers noticed that the equities market closed the year 2010 in the positive of +20.47 per cent. The major market index lost -16.77 per cent in 2011, it closed positive at +35.19 in 2012 and closed higher at +47.19 in 2013. Investors felt bad as the equities market took a bash and lost -16.14 at the close of business in 2014.

The same trend occurred in 2015 when investors lost hugely again by -17.36 at the close of business year. 2016 was also a sad year for those who had hoped on the market to recoup there loses as it slumped again, however much less than that 2016, by -6.17 per cent. After the 12 months recession, the economy appeared to gradually recover and investors gained a huge 42.30 per cent at the close of business in 2017.

Whereas the Nigerian economy (the Gross Domestic Product) eked up 1.95% dragging itself out of a deep recession in which the economy was negative for five consecutive quarters, recovery has remained slow and feeble at 1.95 per cent growth.

For investors, the lending rate is still very high at 25 -30 per cent, limiting investing potentials of possible investors whose earning powers have been sliced further by inflation though calming down, but still maintains a strong hold at double digit of 12.48 per cent.

Analysts believe that when unemployment is high, not many people can spare money to invest. Nigeria’s unemployment is still high at about 18 per cent. As money continues to shrink in peoples pocket they will be more interested in food than anything else.

More worrisome is that market experts have ceased to see any sign of immediate recovery as the business environment continues to assume a fearful and disappointing trajectory.

 

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