21 July 2015, Lagos – Nearly two months after President Muhammadu Buhari took over the administration of Nigeria, investors in the nation’s stock market have lost over N1.032 trillion. Stakeholders have attributed the development to slow pace of governance, lack of policy direction, high political risk, feud in the federal legislature, no ministerial appointment, amongst others.
Financial Vanguard analysis shows that from May 29, 2015 to end of stock market trading last Thursday, investors had lost about N1.032 trillion in the nation’s stock market , as the Nigerian Stock Exchange, NSE’s market capitalisation which represents the value of investors’ investment in the stock market declined from N11.659 trillion to N10.627 trillion.
Another stock market gauge, the All Share Index declined by 9.5 per cent or 3,262.38 points to close last week Thursday at 31,047.99 points from 34,310.37 points it closed on May 28, 2015.
A further review of other performance indices on the NSE shows that the NSE 30 Index declined by 1.4 per cent from 1,425.81 points during the period under review to close last week Thursday at 1.406.49 points; NSE Banking index dropped by 1.1 per cent from 342.42 points to 338.72 points; NSE Insurance Index declined by 0.63 per from 143.60 points to 143.51 points; Consumer Goods Index declined by 1.7 per cent from 772.74 points to 759.61 points; NSE Oil and Gas Index declined by 0.054 per cent from 346.87 points to 346.68 points; Lotus Islamic Index declined by 1.3 per cent from 2, 151.32 points to 2,176.29 points ; NSE Industrial Index went down by 1.5 per cent from 2.208.64 points to 2,176.29 points; NSE ASeM Index remained unchanged as it close at 1,209.30 points.
Meanwhile, the NSE dropped 2.2 percent last week Monday. The index gained 0.3 percent at the close on Thursday, snapping 11 days of losses. The market, which is closed on Friday and Monday for Eid celebrations, has dropped 7.2 percent this quarter, the worst-performance globally outside of China, according to a Bloomberg ranking of 93 primary indexes.
Central Bank of Nigeria, CBN introduced several trading restrictions to support the currency of Africa’s biggest oil producer in the face of an almost-50 percent slump in crude prices in the past year. Last month it stopped importers of 41 items ranging from private jets to toothpicks from using official foreign exchange markets. That has led to a surge of demand for dollars on the black market, reinforcing investors’ belief that a devaluation of the official rate is necessary, according to Ayodele Salami, Chief Investment Officer at Duet Asset Management.
Commenting on the seventh consecutive weekly loss experienced in the stock market, various stakeholders who spoke to Financial Vanguard linked the performance to the state of political, economic and financial situations in the country.
The Acting President of Chartered Institute of Stockbrokers, CIS, Mr. Oluwaseyi Abe said “Currently, the slow governance, non appointment of ministers, lack of policy direction by the Federal Government have all contributed to affect the performance of the market . It is our hope that once the economy starts running the market will improve and begin to attract investors.”
In his own comment, Managing Director/CEO of Highcap Securities Limited, Mr. David Adonri said: “The recent decline of the Nigerian stock market is due to several factors. First is the increase of political risks due to infighting within the ruling party at Federal level. Next is the declining price of crude oil. Others are Chinese stock market crisis, resurgence of Boka Haram, protracted energy crisis and macroeconomic liquidity squeeze. When the new government settles down, some of these issues should be addressed.”
The Managing Director/CEO of Capital Bancorp Plc, Mr. Aigboje Higo said: “The economic situation has affected the stock market. The foreign exchange market is a factor that affects the market. The weak naira is affecting investors to invest in the market coupled with rising inflation. Also, the non appointment of ministers is also another factor that has affected the market. We also have the insurgent situation in the country. Investors are weary of the insecurity in the country and are waiting for the government to assure them of drastic measures aimed to addressing the situation. But it is my hope that all these will soon be addressed given the fact that President Muhammadu Buhuri has started on a clean note by appointing credible people to handle the security sector of the economy.”
Continuing, he said “the Nigerian Capital Market has a lot of potentials and investors should take advantage of an array of investment opportunities and do not need to wait until the boom period.”
Another stakeholder, Mr. Oderinde Taiwo, National Coordinator, Proactive Shareholders Association of Nigeria, PROSAN said “What is affecting the market is the governance of the economy. The foreign investors are complaining of no policy direction of the government as none of them would want to invest in such an economy. There are no ministers appointed, so investors are watching. Also, we should note that our market is dominated by foreign investors who are interested in the return on their investment and not in market development. Also, we have the issue of weak naira in place. The naira is dropping every day due to lack of policy direction by the Federal Government. The infighting among the ruling party is not helping matters. So the Federal Government must start quickly to address these issues otherwise there will be continuous run on our market.”
Another stakeholder, Mr. Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria, and PSAN said “Our market relies much on foreign investors which is not the best. So, the political and economic situations have all contributed to the decline of the market. The foreign investors are interested in returns on their investment. They are not risk takers like the local retail investors. So, the Federal Government should begin to implement policies that will attract local investors. It was the unattractive investment climate that affected the market in the past years.”
It should be noted that following multiple rules rolled out by the Central Bank of Nigeria (CBN) in recent time, other financial experts have classified the monetary policy regime and environment as unstable, uncertain and therefore hostile to businesses. CBN had rolled out two circulars last week declaring some items ineligible for both its foreign exchange (forex) window and the alternative sources namely, the bureau de change (BDC) and export proceed windows, citing excessive pressure on foreign reserve and the need to stimulate local production of those items.
Afrinvest Group, a leading investment house in Nigeria, in its reaction last weekend said “We observe that some of the recent policies are characterized by seeming inconsistencies, conflicts, policy reversals” adding that “more clarifications that have trailed forex guidelines have considerably weakened the credibility of the CBN.”
According to Afrinvest, “The financial market (equities and fixed income)”, according to them, “is in dare need of a clear cut policy direction and stability. A lot of foreign investors appear to have taken to their heels leaving only the bandwagon local investors, who also have no clue of the impact of future monetary policy on their investment position in the scene.”