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2019: Intrigues weighing on market sentiments

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2019: Intrigues weighing on market sentiments

Unrestrained utterances by politicians are heating up the polity with dire consequences on the capital market. Chris Ugwu reports

 

As at last Friday, selloffs in the equities market persisted, as ASI dropped by -2.33 per cent to record its highest weekly loss in four weeks and dropped to a 52-week low of 34,037.91 points.

This was largely attributable to selloffs by foreign players and some fragment of retail investors following negative sentiments towards emerging market assets and increased political tension in Nigeria.

As a result, the year-to-date loss rose to a new high of 11.00 per cent as all sectoral indices closed in the negative, with oil & gas declining by -3.68 per cent in index to record the largest loss.

Market breadth remained negative, with 37 losers and 32 gainers.

Following political crisis that triggered wave of defections across party lines where the ruling All Progressives Congress (APC) was hit after a faction last month defected to the main opposition party, the People’s Democratic Party (PDP), investors have stepped up share sale to transfer their funds from stocks to safer investments heaven.

Negative investment sentiments have also heightened as unguarded activities and unrestrained utterances of politicians are heating up the polity, which has resulted in bear run in the market.

Investors in the companies quoted on the nation’s stock market as at Friday last week have lost about N3.443 trillion since January 31 this year following sell pressure that have persisted in the equities market.

As at the time of filing this report, the market capitalisation of the Nigerian Stock Exchange (NSE), which gauges the value of listed stocks, stood at N12.452 trillion as against the figure of N15.895 trillion recorded at the close of trading in January 31, 2018, accounting for a loss N3.443 trillion or 20 per cent.

Following the massive sell offs, stakeholders on the Nigerian capital market have called on the politicians to exercise restraint from destructive utterances, which they believe is one major causes that currently affects market sentiments.

 

Operators’ worries

The Association of Stockbroking Houses of Nigeria (ASHON) has observed that the unguarded political activities are heating up the polity with dire consequences on the economy as a whole and the capital market in particular and wish to appeal for caution.

ASHON in a statement made available to New Telegraph said: “For the umpteenth time, we strongly appeal to the political class that rather than indulge in unwholesome activities, actions, attitudes and destructive utterances, they should support all efforts aimed at creating the much-needed enabling environment for accelerated economic growth and development.

“Perhaps, we may remind the political class that uncertainties and all sorts of insecurities that currently pervade our country affect investors’ sentiments, asset valuations, market and country risk profile and portfolio allocation decisions. In recent times, trading statistics on the securities markets in Nigeria have been reflecting investors’ apathy to unprecedented level of tension that portends likely breakdown of law and order in the 2019 general elections.”

The group explained that it was an unassailable investor-behaviour that bad news triggers market panic and investors over-react to such news.

They noted that as the country’s economic barometers, the securities markets in Nigeria have continued to reflect investors’ apprehensions to instability in the political and economic landscape through all their indices.

“This has largely accounted for the inability of our market to fully recover from the effects of the 2008 financial crisis, notwithstanding the efforts made by the regulators and operators to fully revive the market. There is clear and present danger if the trend continues.

“Our market is bleeding. Foreign portfolio investors and their indigenous counterparts have embarked on massive sell down of shares and other financial instruments with attendant effect of gross erosion of values despite stellar performances of many listed securities.

“For instance, the Nigerian Stock Exchange’s All Share index has been sliding since the beginning of the year, returning negative year-to-date performance of 7.4 per cent as at Monday, August 13, 2018. Innocent investors watch helplessly as their investments are plundered by the bearish market exacerbated by prevailing uncertainties in the polity created by the political class.

“There is a reported significant drop in the nation’s reserve position to a four-month low of $47 million as at the end of July which is wholly attributed to capital repatriation by foreign portfolio investors,” they said.

The group noted that it had been proven that there was a correlation between the development of the capital market and economic growth and development of any country.

“As stockbrokers, trained to create wealth and manage investments, we hasten to say that projections cannot be made under the prevailing atmosphere of systematic risk. Consequently, this increases the country’s risk profile while investment decision is obviously threatened. This explains why investors are panicky.

“As the current worrisome operating environment that characterises our financial markets deepens, we appeal to the political class to moderate their activities and utterances by acting in such a manner as will engender investors’ confidence in the Nigerian economy and by implication our capital market. This becomes compelling as we approach general elections next year,” the group noted.

 

Safety assurance

Worried by the spate of downward movement of share prices, the Chartered Institute of Stockbrokers (CIS) and ASHON have, however, assured nervous investors of safety of their investment.

In a separate chat, CIS’ President, Mr. Adedapo Adekoje, and his counterpart, ASHON’s Chairman, Chief Patrick Ezeagu, explained that performance of listed companies on the Nigerian Stock Exchange was good but the current downswing was the effect of general lull in the economy and other exogenous factors prompting both domestic and foreign investors to convert their shares to cash.

Ezeagu explained that nothing was wrong with at the exchange in terms of governance structure , technology and compliance with the rules and regulations by stockbrokers.

According to him, “the quoted companies are not doing badly, given the general lull in the economy and the fact that we cannot rule out the usual fear of election.”

He noted that these factors could elicit massive sale of shares, especially by foreign investors.

“The Federal Government should intensify efforts in addressing insecurity problems in Nigeria and keep on reassuring of a safe investment environment.

“Our market is full of opportunities but we need to sustain the momentum of assuring both indigenous and foreign investors that the market is safe.

“The exchange is a barometer that gauges the mood of the economy. Therefore, we should address investors’ fears in order to enable them take advantage of good returns associated with our market. The current bearish trend is temporary as the market would bounced back soon,” said Ezeagu.

He advised investors not to panic as the current bearish trend is temporary and that the market would bounced back soon.

He said: “We wish to express our appreciation to numerous investors in our markets for their resilience and confidence in the Nigerian economy and urge them not to panic.

“We are confident that the ongoing downswing on the securities markets will be shortlived as our market fundamentals remain strong.

“Shares of many listed companies are undervalued, selling below their intrinsic values. There can be no better time to beef up portfolios in anticipation of superior Return on Investment (ROI).”

Commenting on the valuation of quoted companies’ shares, Adekoje stated that the good news was the exchange having good valuations, hence investors should buy on long term basis and not short term.”

Adekoje urged government to initiate policies that will enable the Pension Fund Administrations (PFAs) increase their investment in the market.

“The good news is that we are having good valuations. Investors should buy on long term basis and not short term,” said Adekoje.

 

Last line

Despite an improving macro-economic environment and a semblance of policy stability, tension cannot be ruled out as the country enters into the election cycle.

Obviously, a lot of attention will be drifted from economic management that may further slowdown market momentum.

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