REPORT | Investors Lose N1.73trn Under Buhari’s Administration

When President Muhammed Buhari emerged winner of the 2015 Presidential Elections on March 31, 2015, the Nigerian Stock Exchange’s All Share Index recorded a remarkable improvement with about 10 straight days of gains as investors basked in the excitement of a peaceful election and surprising acceptance of defeat by President Goodluck Jonathan. On the day the result was announced, the market gained a whopping 8.3 per cent and 3.9 per cent recorded the following day. But volatility in the market commenced thereafter, making both foreign and local investors fleeing in droves. The equity market had suffered decline in the past two years, 2014 and 2015. While the market declined by 16.1 per cent in 2014, it went down by 17. 4 per cent in 2015. The negative performance led to a massive depression in prices of stocks that offered attractive entry opportunity to investors. Despite the opportunity, many investors shunned the market due to the prevailing economic situation. As a result, the market depressed further in the first quarter of 2016. Specifically, the All-Share Index fell by 10.9 per cent in Q1 falling from 28,335.01 to 25,306.22. Similarly, the market capitalisation shed N1.1 trillion, falling from N9.8 trillion to N8.7 trillion.

However, the decline in the value of investments in the first quarter did not come to many stakeholders and investors as a surprise given the state of the general economy. A blurry fiscal direction, declining oil prices, policy reversal by the Central Bank of Nigeria, CBN, foreign exchange restriction, all contributed to keep many investors watching the market without investing among others. The Gross Domestic Product, GDP, for instance, fell to historic low of 2.75 per cent, a decline of 0.4 per cent from May 29 when Mr. President assumed power. Also, scarcity of foreign exchange has largely crippled the private sector with N350 at the parallel market and N197.93 at official rate. Oil price dropped to $48.36bn, from $65.56 in the last one year. As at last Friday, May 27, 2016, the benchmark index closed at 28, 902.37 points, a decline of 15.76 per cent from 34,310.37 points recorded on May 28, 2015, while market capitalization shed N1.73trillion to close at N9.926 trillion from N11.658 trillion Commenting on the performance, a stockbroker and Chief Executive Officer of Highcap Securities Limited, Mr. David Adonri said the market declined because of lingering energy crisis rising inflation and general low confidence in the economy.

“However, dividend yield was quite high due to low prices of stocks,” he said. Also, the Chief Executive Officer of Quest Advisory Services Limited, Mr. Bayo Rotimi said the market was affected by the adverse economic climate characterised by declining oil prices, rising inflation, declining capacity utilisation and job losses in the manufacturing sector, uncertainties around devaluation of the naira and the delays to the 2016 budget. Data obtained from the CBN’s website showed that investors’ confidence weakened from 25.3 per cent to 41.5 per cent in the period under review due to deteriorating banks’ balance sheet due to rising non-performing loans. Also, there was sharp decline industrial sector, from 2.53 per cent to 5.49 per cent. Early in the year, the Chief Executive Officer of the NSE, Mr. Oscar Onyema had expressed optimism that with greater clarity on policy direction, they anticipated the return of investors who had remained on the sidelines throughout 2015.

“This return is predicated upon return of investor confidence as a result of: effective implementation and communication of the government’s economic blueprint; credibility in monetary policy stance; relative stability in the macro economy (oil price stability above benchmark targets, increase in tax collection to gross domestic product among others) and improved security,” he said. Speaking on the focus of the NSE in 2016, he said the exchange would focus on executing its strategy in order to continue to provide a credible platform for financing the economy. “To this end, we intend to intensify engagement efforts with the federal government. We have also prioritised three initiatives for 2016 aimed at achieving the exchange’s three strategic objectives of increasing the number of new listings across five asset classes, increasing order flow in the five asset classes operating a fair and orderly market based on just and equitable principles,” Onyema added. Reflecting on the performance of the market in the past year, the President, Constance Shareholders Association of Nigeria, Mr. Shehu Mikail, rated the market as not exhibiting its full potential due to inclement operating country’s economic stance, which had been very hostile in terms of policy direction.

Mikail, who pointed out that the serious economic and financial challenges constituted major constraining hurdle for businesses and thereby resulted in activities being slowed down, in all sectors of the economy, including the capital market. Similarly, another investment expert and analyst at WSTC Financial Services Limited, Mr. Tola Oni, lamented that the efficiency of the country’s economy had been constrained by both monetary and fiscal policies with the attendant negative implications for the capital market’s growth’ He said: “Our concern is that this flexibility must mean flexibility in the whole sense of it. We’ve seen the capital market make progress recently owing to this. Any attempt by the government to interfere again could drag us back significantly.”

Despite all its negative sides, the market last week witnessed a pull back, reacting positively to a combination of the recent passage of the 2016 budget into law and the decisions of Central Bank of Nigeria’s Monetary Policy Committee to hold the benchmark rate. Consequently, the Nigerian Stock Exchange’s Composite All-Share Index closed positively with returns of 0.91 per cent at the end of Friday’s trading, breaking three strong resistance levels to wipe out all the losses so far suffered and turning positive on year-to-date basis for the first time this year. It closed. Analysts believe that the six-week market upswing has been on strong investors’ reactions to expectations of improved liquidity in the system based on the expected implementation of the 2016 budget to complement the latest monetary policy regime of the CBN. Specifically, they noted that the prevailing high inflation rate of 13.80 per cent favoured the stock market, making a nonsense of other investment windows and their returns and thus attracting funds to equity portfolios to hedge against inflation.

Source: National Mirror

__________ 

Follow us on Twitter at @thesignalng

Copyright 2015 SIGNAL. Permission to use portions of this article is granted provided appropriate credits are given to www.signalng.com and other relevant sources.