Peaceful elections
Analysts and investors who had expected that Nigeria’s presidential election will erupt in chaos celebrated the relatively peaceful victory of opposition leader, Muhammadu Buhari — and the excitement filtered into the country’s stock market thereafter. This became imperative because Nigerian Stock Exchange (NSE), which stepped into 2015 on an unfavourable note with key measurement indicators tilting southwards, finished the first quarter with a loss of N760 billion. However, the peaceful presidential elections that saw former military ruler emerging winner, ignited excitement in the capital market community, leading to a gain of N906 billion in market capitalisation, which began the second quarter on a positive trajectory. Nigerian stocks had surged the most since March 2010, leading gains among world equity markets, after Buhari won a vote that marked the first peaceful shift in power since the end of colonial rule in 1960. The Exchange’s All Share Index rose for a ninth day to extend its longest streak of gains since December 2012.
The key benchmark indices maintained positive path to close in the green, taking supports majorly from highly and medium capitalised stocks. Specifically, the market capitalisation of equities appreciated by N903 billion to hit N11 trillion, as market sentiment took a positive trend. The twin market indicators, the All-Share Index, rose by 2635.32 basis points or 7.7 per cent from 31,744.82 to close at 34.380.14, while the market capitalisation of equities gained N903 billion or 7.7 per cent from N10.717 trillion to N11.620 trillion. According to Bloomberg News, the West African nation’s $500 million of Eurobonds due July 2023, advanced for the 11th day, pushing the yield down to the lowest since December 8, as President Goodluck Jonathan conceded defeat, reducing the threat of post-election violence, which marred previous votes. “The political risk has certainly decreased,” a money manager at Stanlib Asset Management Limited, Thabo Ncalo, which oversees about $45 billion and has been adding to its Nigerian holdings, said by phone from Johannesburg. “It bodes well for investing in Nigeria. It boosts the case for coming back into the country,” he said.
Dashed hopes
However, as expectations by some market watchers that the peaceful general elections and subsequent smooth handover to the new government would drive investors’ optimism to galvanise stock market activities in the second quarter of the year was dashed. Consequently, stocks, last week, fell to a three-month low and the naira hit a new record low. Investors had hoped for a sustained rally after smooth elections in March. But markets have taken a hit from worries over the delay in appointment of cabinet members, continued slide in the naira and the impact of persistently low oil prices on government finances.
Delay in cabinet appointments
Delay by the new administration of Buhari to name ministers and other officials who will give clear policy direction of the economy after about two months of inauguration has cost investors in the NSE a monumental loss. Market analysts said that investors, especially foreigners, were unlikely to make significant investment in the market, if any at all, until they had a clear picture of the policy direction of government. This, according them, is due to the delay in the formation of the cabinet and lack of vital information about what the economy’s direction is going to look like, leaving investors uncertain about what policies government will implement.
Analysts’ perspective
Analysts at FBN Capital reviewing the stock market at the end of June, said: “Both Lagos and Nairobi stock markets have declined this year by -4.1 per cent and -5.4 per cent ytd respectively, whereas the more liquid and far larger Johannesburg bourse has gained 5.8 per cent. Lagos has been the more erratic, shedding -14.7 per cent in January alone on the negative macro headwinds, yet gaining 20.0 per cent between 20 March and 13 April on an election- driven surge. The NSE ASI has since been in broad retreat on a combination of poor company results and a sense of drift since the handover to the new administration on 29 May.” The honeymoon the capital market enjoyed was short-lived They noted that the APC assumed power at the end of the transition with a good deal of goodwill with the population and investors. “The market is waiting impatiently for new appointments and policies. We have often said that its largest challenge is not fiscal but institutional (the willingness of the legislature and the executive, both APC dominated, to work together).
It gives us no pleasure to point out that our call has been vindicated. “We have seen alarmist stories that core ministerial appointments may not be made until the assembly returns from its summer recess in September and hope that they represent indirect pressure on the legislature to deliver,” they said. The Chief Executive Officer, Financial Derivatives Companies (FDC) Limited, Mr. Bismark Rewane, said that the delay by the new administration in Nigeria to name cabinet members to drive government policies is increasing uncertainty and negative sentiment in the nation’s stock market. Rewane, who stated this while presenting the company’s monthly economic news and views at Lagos Business School (LBS), said that the absence of a firm policy direction makes investors jittery, adding that the market remains bearish as investors seek shelter in alternative asset classes. The cabinet delay won’t please investors, said Alan Cameron, an economist at Exotix Partners LLP.
“They’re expecting tighter fiscal policy, currency devaluation and a greater focus on tax collection after the drop in oil prices, he said. “There was initially some hope that Buhari would be able to tackle these changes more quickly and with more credibility, but the time line has now been pushed back,” Cameron said by phone from London. “It’s going to be a difficult pill to swallow for foreign investors,” he said. Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said that the policies of government would determine the return of the foreign investors and an upturn in investment in the capital market. He noted that the economic policies of the new government would either make the capital market attractive or unattractive for investors, both local and international. “If government comes up with policies that make Nigerian instruments very attractive and then stabilises the exchange rate or the exchange rate is at a level where foreign investors believe that it will not depreciate materially further, then you will see the return of foreign investors, which may up their share in the market.”
Naira/oil price slide
Last week, Bloomberg noted that Nigeria’s currency, twice devalued in the past year in an attempt to cope with lower oil income, has weakened 7.7 per cent against the dollar this year on the interbank market. The International Monetary Fund (IMF) estimates that growth will slow to 4.8 per cent this year from 6.1 per cent in 2014. The NSE Index hit its 2015 peak of 35,728.12 on April 2, the day after Buhari was declared the election winner. Since then it has fallen eight per cent. Rewane had noted that the current downturn in the nation’s capital market might be sustained, adding that this became necessary following challenging economic outlook, which has continued to fuel negative sentiment on the capital market because of the huge drop in oil prices.
Conclusion
Unless there is a clear picture of the policy direction of government, investors’ apathy in the Nigerian capital market will be sustained despite series of strategies, including tighter regulatory frameworks an
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