By OKEY ONYENWEAKU

Though the Nigerian Stock Market appears to be gradually reversing its former course from a relatively long-drawn negative position to a more hopeful one given recent gains recorded in trading, experts say that the current surge is however not sustainable given the yet distressing underlying economic conditions nationally and globally.

The market had appreciated by 5.6percent as it closed on Wednesday 14, 2020. There was also a sudden jump in the All share index from 26,965.77 points on October 2, 2020, rising to close at 28,344.33 on October 9, 2020 last week.

In the previous week, the market had also recovered by 2.4%, raising analysts’ hopes that this is an indication that the market may reverse the huge losses which have kept it down for the most part of this year.

Assessing the market on year on year performance, it has gained 15.82 per cent. And at the close of business last Friday, three of the seven sectoral indices have equally appreciated year to date (YTD) year.

While the NSE 30 Index appreciated by 4 per cent; NSE Insurance gained 8.76 per cent and the NSE Islamic Index appreciated by 9.064 per cent. On the other hand, the NSE Consumer Goods  Index depreciated by  20.44 per cent year to date;  the NSE Banking Index fell by -1.58 per cent; the Oil & Gas Index also declined by -18.14 per cent; and the NSE  Industry Index depreciated by -17.45 per cent.

However, the All Share Index gained 6.66 per cent while the market capitalization rose 15.488 per cent. This, in analysts’ estimation, is a positive disposition despite the numerous challenges impeding the economy.

Cursorily, the sudden turn of the market to a positive disposition has been hinged on some issues which seem to have favoured the equities market.

These include the fact that there is a consensus that the new policy of the CBN which bars domestic institutional investors from participating in Open Market Operations (OMO) and the lowering of interest rates have concomitantly shifted funds to the equities market.

There is also the view that the opening up of the economies of Nigeria and other developed countries after the lockdown may be helping funds to trickle into the market.

Some analysts have also noticed that because the bond market is not as attractive as in the past, given that rates have declined, this has also come to constitute an advantage of sorts for the equities market as some funds from this area may be presently diffusing into the equities market.

These developments, market observers say, are expected to nudge banks into resuming lending to help liquefy the economy. Ordinarily, whenever there is liquidity, the economy becomes lively and some percentage of it finds its way into the capital market.

 A substantial part of these monies, a top market analyst surmises, “would end up in the Capital Market”

BH recalls that, in recent times, several far-reaching measures have been deliberately taken by the CBN to buoy the economy under the captainship of CBN Governor, Mr. Godwin Emefiele.

On the specific subject of market resurgence, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema says that the market is riding on some positive policies of the CBN and the opening up of economies in the world in addition to the strong fundamentals of the companies to turn around the market.

‘’The Nigerian economy and the market like every other economy in the world have been greatly impacted by Covid-19 and associated economic challenges. So, we saw a lot of volatility in the market similar to other markets in March, a time frame when the Covid-19 actually hit Nigeria.

 Since then a number of policy changes that have occurred and as the world is now in a recovery mood and economies are opening up we are seeing investors reacting to these policy changes.  And as you know, the markets are forward indicators of what will happen in the economy.

‘’So, the equities market is reflecting that. I must say some of the policies I made reference to include the CBN policy that domestic institutional investors should stop participating in the OMO market. That has driven significant funds into the NTB market. Some of these have found their way into the equities market. We have also seen a cut in interest rates that is a significant move to support equities as an asset class because what investors tend to do is to look for yields and returns. So, as the Nigerian economy has shifted into a negative real interest environment.

‘’With those types of cuts you must look for investments that will give you higher yields and higher returns. Given the record dividend yields that are available in the Nigerian market and given the strong fundamentals of the a number of the companies that are listed on the exchange it makes sense that  as investors  try re-balance their portfolios, they will look at equities.

There are also a number of other fiscal policies that have happened that are very supportive of the market. So, I commend the CBN and the CBN Governor for their thoughtful leadership and generally their leadership in attacking the pandemic and taking measures to cut interest rates”.

The one million naira question is how sustainable will this seemingly bullish trend be? It is a question that many investors seem to be asking.

On their part, some analysts have expressed their reservations and do not want to be carried away by what could be described as a flash in the pan stirring. In their view, the Nigerian economy has not been strong overall for some time now and no immediate indication shows that the factors that had precipitated the downturn have now been fully taken out of the way.

Many are seemingly certain that at this rate, the economy is headed for recession. Despite IMF’s reversal of Nigeria’s 2020 economic growth forecast from -5.4 per cent to -4.6 per cent, the harsh conditions that were there before Covid-19 are still strong and pervasive in the operating environment.

Analysts believe it has become hard for firms to fly in such weak economies as Nigeria where the economy  which has already shrunk by -6.1 per cent in the second quarter of 2020 and is expected to formally slide into recession  anytime now; where inflation is hitting the roof top at about 13 per cent; where the Naira has lost value and vigour; where the budget deficit stands at -4.69% of GDP; where insecurity has almost completely halted business activities in some parts of Northern Nigeria; where unemployment remains very high; where government is unstable; and where economic policies are allegedly being executed to favour a section of the country.

Compounding the challenge is the fact that only recently, the government hiked the prices of fuel and electricity for the masses of the people of the country, which is already much burdened, what with 82 per cent of its population in the poverty bracket.

‘’Who would expect companies to perform magic in a country where its citizens appear to have lost hope’’, a senior civil servant who would not want to be mentioned in print.

This weekend will make it about 10days that the youths have been on the streets of Nigeria protesting against bad governance which they have tagged #EndSARS (a reference to an arm of the police that have allegedly killed many young people in controversial circumstances though their brief was clearly to stamp out armed robbery).

This is in addition to the wobbling price of crude whose price hovers between $38 and $40 per barrel and which is the main survival anchor of the Nigerian economy.

Managing Director of HighCap Securities Limited, Mr. David Adonri who shares the views of the CEO of the NSE told Business Hallmark that the market surge may have been propelled by the expansionary measures of the CBN in reducing the interest rates from 12.5 per cent to 11.5 per cent.

He also explained some bond holders may equally have returned monies and yields they had made for re-investment in the equities market.

According to him, the N2.3trn palliative to MSME has also increased the volume of money in circulation which the real sector lacks the capacity to absorb.

These measures Adonri said have seemingly pumped some more money into the system which have now found their way into the equities market.

Situating the development in broader light though, Adonri adds that, despite the sudden surge of good fortune, most investors are however skeptical that this surge will not be sustained because the liquidity flow cannot be consistent over a long time, given the weak economy.

‘’We know that the market surge will not last since the above measures are temporary. We are really skeptical,’’ he concluded.

Indeed, a case of making hay while the sun shines, right? We plod on.