Published On: Sun, Jul 1st, 2018

Investors bemoan slow market


After a sizzling 2017 performance with market yield closing at a striking 46 per cent by December, second quarter 2018 has proven to be a major disappointment with mid-quarter market yields stuck under 8 per cent. A number of local analysts rue the depressed state of the market and are predicting a subdued year end equity portfolio return.

Contrary to earlier expectations, the Nigerian All Shares Index (ASI) went into a nasty tailspin, dropping off from a robust 19 percent yield in February to a sobering -0.57 per cent by the end of last week’s trading. Granted that this does, in the main, reflect a melting of global trading passions as the Hong Kong Hang Seng dipped to -4.8 per cent down from about 10 per cent in the first quarter of the year and the Argentine Merval slipped to -10.9 per cent per cent from an earlier first quarter figure of 12 per cent, the plunge in the Nigerian market yield has kept local and foreign investors glued to the seat of their pants. Apparently, anxiety about the Nigerian market has been fueled by delays in the approval of the federal budget for the year with only six months left to the end of the traditional budget cycle. With a lack of evidence to show multiplier bonuses from heavy capital spending so far, total consumption looks weak relative to the Nigerian economy’s perceived need to grow by at least 10 per cent per annum over the next five years if unemployment (currently at about 18.8 per cent) is to be addressed forcefully.

Analysts note that monetary and budgetary policies seem to have been trapped in a fiscal dilemma. While the Ministry of Finance (MoF) desires a rapid expansion in spending to stimulate growth in a pre-election year; the monetary authorities, on the other hand, want to continue to bang their chests at falling annual inflation rates, while politicians want to lay blame on a supposed dead duck budget was yet to see the light of day after several months of weaving and bobbing between both the national assembly and the federal executive. With the budget now signed and approved, howbeit, grudgingly by the President, maybe the economy, say local analysts, will begin to see higher growth rates in GDP. Over the last five years the fiscal authorities have tolerated a sizeable budget deficit of between 1.5  per cent in 2013 and a likely 2.6 per cent in 2018 (down from 5.1 per cent in 2017). If not handled properly, the debt overhang resulting from the deficit could prove costly.

CBN Gov Emefiele and Finance Minister Adeosun

Analysts have noted that higher budget deficits without output growth would lead to the CBN tightening money supply, this, according to local economists, would lead to higher domestic interest rates and slower future output which in turn would reduce corporate earnings and sink equity prices. How will this pan out for those that have stacked up on growth stocks with high hidden value expectations? ‘’Pretty poorly’’, says  Segun Atere, chief equity analyst at Apel Assets and Trust, a Lagos-based investment supermart, ‘’the pace of economic growth is much slower than many would have liked to see and the prancing around of government officials over budget 2018 is not helping matters. Tomfoolery serves great comic relief but it is a terrible way to promote national growth and development. Comedians are excellent, but not in public office’’.

Last year gross national output grew by a measly 1.9 per cent, and a number of institutional investors had predicted (or perhaps hoped) that the figure for 2018 would be in the region of 2.6 per cent, but that goal is becoming increasingly a mirage as the fiscal tap has been turned off by the absence of a budget and last gasp capital spending in the last quarter of 2017 is yet to flow through the economy. Says Atere, ‘’you have got to appreciate the fact that government’s business and stimulus has been held up by the non-passage of the year’s budget ; the longer this lasted the more dire the hopes for sustained growth becomes’’.

With broad market direction looking decidedly bearish, several traders have resorted to intense intraday trading actions which have created a greater amount of volatility in recent weeks thereby making investors lose  a tidy bundle on each trade transaction as the practice of ‘stock churning’ or trading to increase operating commissions, take a heightened pace. A few brokerage houses have actually been engaging in ‘front running’ or a situation where brokers sell shares that they have warehoused and gradually sell to clients on their books who do not have discretionary mandates.  Says one trader that refused to have her name put in print, ’’brokers need to cover monthly operating expenses regardless of whether they are in a slow market or not, so the temptation to generate heavy intraday transactions is compelling’’ she notes.

As the second quarter of the year heads into a home stretch, the outlook for the stock market remains sober.  Large cap stocks may see net earnings grow marginally but not strongly enough to provoke major upward market swings.  A few banking sector stocks look like ripe pickings, while the insurance sector seems to be getting off on an inexplicable high, one analyst explained it this way, ‘’it all comes down to the ’how for do effect’, which implies that when the desirable is not available, then  the available becomes desirable’’.

This may be a clever way to trade the market in the eyes of some bolshie investors, but investors who prefer a more rigorous approach would prefer not to read tea leaves as they stick to the daunting reality of data.

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