Chinwendu Obienyi
Every year comes with its defining moments and the things that make it memorable, and 2018 wont be any different.
It was a year of the unpredictable, of high or dashed hopes and for the investing community in Nigeria, it was a mixture of the good, bad, and the ugly; leaving behind tales of sweet or sour memories.
The Nigerian Stock Exchange (NSE), had in 2017 earned an all round global recognition as one of the best performing markets following renewed efforts from monetary and fiscal authorities as the equities market regained the much needed confidence of foreign portfolio players with the commencement of importers and exporters forex window in the second quarter (Q2) of 2017.
The All-Share Index (ASI) rose by 43 per cent during the period under review from 26,616.89 points to 37,990.74 points, while market capitalisation closed at N13.52 trillion.
The rally extended to the current financial year as market capitalisation or the total value of listed equities stood at N13.62 trillion as at January 2, 2018 and rose by 13.2 per cent or N2.1 trillion to N15.7 trillion as at January 26, 2018. Similarly the ASI, which opened the new trading year of 2018 at 32,264.79 points rose by 5,508 basis points to close at 43,773.76 points as at January 31, 2018.
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This brought fresh optimism among investors. But things took a twist after a mid-February rally as the market recorded an unprecedented reversal in performance even as market capitalisation, which stood at N15.55 trillion in February 28, 2018, dropped to N11.676 trillion as at December 24, 2018, representing a N3.87 trillion loss, while the ASI followed the trend, buckling down by 11,363.53 basis points to 31,967.01 points as at December 24, 2018 from 43,330.54 points achieved as at February 28, 2018.
This situation was apparently triggered by jitters in the political space, as Nigerians witnessed high wired intrigues and acrimonious power play between the two dominant parties in All Progressives Congress (APC) and the opposition party, Peoples Democratic Party (PDP).
The highpoints of such intrigues included the defection of 35 lawmakers from APC to give the opposition PDP majority in the Senate.
At the plenary, 12 lawmakers in the fold of the ruling party announced their defection to PDP while two cross-carpeted to the African Democratic Congress (ADC). With the development as of the time of this report, PDP has 56, APC, 48, ADC, two and APGA, one.
The gale of defection also spread to the House of Representatives where APC lost 37 members: 32 to PDP, four to ADC and one to the United Progressive Party (UPP).
The developments contnued to adversely impact investor’ confidence which got to a head on september 21, when the Central Bank of Nigeria (CBN), revoked the operating license of the erstwhile Skye Bank following the inability of the owners to shore up the its capital base, even after it received a N350 billion intervention in July 2016.
Governor, CBN, Godwin Emefiele, explained that the defunct bank required urgent recapitalisation as it could no longer continue to live on borrowed times with indefinite liquidity support from CBN. This led to the establishment of a bridge bank, called Polaris Bank, to assume the assets and liabilities of Skye Bank.
In another development, the apex bank slammed a fine of N5.87 billion on four banks that breached its capital importation policy. The CBN debited the account of Standard Chartered Bank with N2.4 billion, Stanbic IBTC N1.88 billion, Citibank Nigeria, N1.2 billion and Diamond Bank N250 million for allegedly issuing irregular Certificates of Capital Importation (CCI) on behalf of some offshore investors of MTN Nigeria Communications Limited. MTN Nigeria was also directed by CBN to refund $8.13 billion to its coffers.
Meanwhile, the global economy remained under stress with gloomy outlook as trade wars between the USA and China, alongside uncertainty in the crude oil market with possible external shocks, among others heightened. Some experts argued that this portends grave danger in the investment horizon as emerging markets such as Nigeria cannot be fully insulated from these shocks.
But some analysts who spoke to Daily Sun however noted that the outcome of the 2019 general elections and the ability of whichever government emerges to address the lingering economic challenges, especially investment in infrastructure, management of fiscal and monetary policies, faithful implementation of the Economic Recovery and Growth Plan (ERGP), enhanced inclusiveness and creating sustainable conducive business environment may likely shape activities in the Nigerian stock market.
For instance, the Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, noted that the performance of the capital market in 2018 cannot be solely blamed on the economy, but rather, on the uncertainty in the political space that is influencing the negative performance in the market.
His words: “The first quarter recorded a growth of 1.95 per cent, 1.5 per cent in GDP growth rate in the second quarter and a 1.81 per cent in the third quarter and yet the capital market has lost about 15 per cent as at Monday, December 24, 2018 despite that the economy is going much higher than what was recorded in the previous year. So, the capital market woes in 2018 cannot be blamed on the economy; rather, it is the uncertainty that is influencing the negative performance in the market.
“If we get the politics right and we have a free and fair election, the market will rebound and we should expect that foreign portfolios will resume their interest in equities and I believe that once this factor of a free and fair election takes place in February 2019, we should see a rebound in the second quarter of next year.”
For his part, Chief Executive Officer, Sofunix Investment, Sola Oni, said the current trend in the market is expected to continue till the end of the first quarter as 2019 election fear is palpable.
Oni explained that the usual Santa Claus rally between December and early January may be moderated by the current mood of the market and also characterised by investor apathy.
According to him, real investors are likely to adopt wait and see attitude while speculators may intensify moving their asset classes from variable to fixed income. But discerning investors will always take advantage of low valuation of stocks and strong market fundamentals to beef up portfolio.
Emerging activities of commodity exchanges is expected to create more investment opportunities in the market as this is consistent with the government’s plan to upgrade investment in agriculture, which is the base of commodity products.
“As uncertainty beclouds the entire investment space, we investors should take advantage of professional advice from Stockbrokers and other investment advisers who keep tabs on risk and return trade off.”, he said.