BY OKEY ONYEWEAKU
Despite gloomy economic headwinds, a false sense of optimism has pervaded the capital market as the newly elected President; General Muhammadu Buhari prepares to take office on May 29, 2015.
Against the background of the perceived ability of the incoming president to reverse the declining fortunes of the economy, investors in the Nigerian bourse have lately adopted an optimistic outlook to stock market performance, a development which experts are warning may be an expression of premature optimism.
This expression of faith in the new administration’s ability to implement quick fix measures to address the nagging short term problems of the economy has at the moment however stimulated a bullish run in stock prices.
For instance; the market capitalisation which rose by 4.8 per cent from N9,845 trillion on Monday March 23, 2015 to N10,318 trillion on Friday March 27, 2015 before the Presidential election also climbed by about 8.30 per cent its single biggest daily gain this year, wiping off the negative Year to Date (YTD) performance immediately after elections.
Interestingly, the week after the election the market capitalisation rose by 15.6 per cent from N10, 493 trillion on Monday March 30, 2015 to N12,135 trillion on Thursday April 2, 2015.
Since after the election the market index seems to have moved more to the South than to the North reminding investors that the market leap may have been a one- off activity.
For instance, even though the market appreciated by 0.64% last week, year to date has also gained 0.15 as at April 31, 2015. However, many fear that recent positive year to date performance of the market is feeble and cannot be sustained.
After all, the market just emerged from a negative position, having lost about 0.51 per cent in a consistent drop from N11,990trillion on Monday April 13 , 2015 to N11,928 trillion on Friday April 17, 2015.
Despite a slower growth rate, investors may have misdiagnosed the macro- economic challenges of the economy, their predisposition to believing in immediate policy options to resolve deep structural problems is thinking and believing that the incoming government might improve the situation overnight. ”
It is not true. The economy of the country is already in bad shape. You can be optimistic but things cannot change overnight”, an investor conversant with market has said.
Looking at the issues of the Nigeria’s operating environment, investors are still cautious given the fact that market fundamentals have not changed. The price of crude oil which peaked at about $114 per barrel in June 2014 still hovers between $54 and $57 per barrel.
Energy has not improved, budget benchmark is yet to be decided and smoothened between the Executives and National Assembly, the nation’s production output keeps falling and the Central Bank of Nigeria is still grappling to stem the fall of the Naira.
Despite the peaceful elections, many stakeholders have yet to grasp one strand of reason to believe the economy will do better under Buhari’s watch than that of Jonathan.
These, analysts say, are still worrisome since there are no convincing reasons to think that the new president is more economically savvy now than before.
Investors are not as confident that the market growth a few weeks ago is not a flash in the pan given that the same stocks which reacted sharply to North are retracing theirs steps back to South.
Analysts think that recent optimism of investors could change course and that the recent bullish trend could be short lived given that there is no concrete or significant issue capable of propelling the market.
A senior broker, Mr David Adonri told Hallmark in a telephone interview that the euphoria surrounding the election propelled a positive reaction from the market and ended before corporate disclosures achieved a similar nudging of the market.
Adonri explained that after each reaction profit takers besiege the market and wait again for another opportunity to exploit.
According to him, the market will remain low except something significant occurs in the macro- economic environment and propel the market in the short term, adding that should the price of crude increase again there is hope for the market.
He predicted that the market which has become weak again is likely to react positively again during the handing over of governance to the new government.
The capital market usually reacts because of many things of which change in fundamentals, announcement of results among other sentiments are of importance, Dr. Afolabi Olowokere observed.
Olowokere is almost sure that the market reacted positively because of the peaceful election and not because General Buhari has won. He explained that there was uncertainty in the air which propelled investors to take different decisions.
In his view, President Association of Stockbroker Houses of (Nigeria ASHON) Emeka Madubuike said exclusively to Hallmark that the market may not rebound in the short term because of the weak economy since the capital market cannot be isolated from the economy.
He explained that the agenda that ASHON has set for the new government was to use the capital market to develop the economy.