Investors remain jittery over Nigeria’s political future

Chinwendu Obienyi

Indeed, the nation’s capital market is on its lowest ebb right now as it has continued to record unprecedented lull due to macro-economic challenges, volatile foreign exchange, political tension and uncertainty in the economic environment.

This situation has pushed investors, especially the foreign investors, to exit their positions while speculators went on bargain hunting, which also took its toll on the quoted companies.

The stock market had in 2016 posted a 26 per cent loss, but the table turned in 2017 as it recorded an increase of N4.5 trillion in market capitalisation, from N9.15 trillion in January to N13.52 trillion in December.

The All-Share Index (ASI) rose by 43 per cent during the period from 26,616.89 points to 37,990.74 points. This earned the exchange an all round global recognition as one of the best performing markets.

This was attributed to the renewed efforts from the monetary and fiscal authorities as the equities market regained the much-needed confidence of foreign portfolio players after the commencement of importers and exporters forex window in the second quarter (Q2) of 2017.

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. Also, the ASI, which opened 2018 at 32,264.79 points rose by 5,508 points to close at 43,773.76 points.

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Things took a twist after mid-February rally as the market capitalisation tumbled from N15.55 trillion of February 28, 2018, to N11.764 trillion as at November 19, 2018, representing a N3.8 trillion or 24.5 per cent loss.

Consequently, the index followed suit shrinking by 11,187 points or 25.81 per cent to 32,143.41 points as at November 12, 2018 from 43,330.54 points as of February 28, 2018.

The current political situation has not helped matters as political utterances have scared away these investors leading to prices of stocks crashing.

Recently, the All Progressives Congress (APC) and the Peoples Democratic Party (PDP) were at war after the former Vice President, Alhaji Atiku Abubakar, who is also PDP’s flag bearer for the 2019 presidential elections, described the search on his plane by special security squad at the Nnamdi Azikiwe International Airport, Abuja, as an attempt to intimidate him.

Also, this week saw the two parties come out with different jingles for their campaign. The APC came out with the “Next Level” slogan while the PDP came out with “Let’s make Nigeria work again” slogan with Atiku promising to lift 50 million Nigerians out of poverty in the first two years of his administration if he wins the election.

The former vice president, speaking at his policy launch through a live Facebook address in Yola, said the idea is to double the size of Nigeria’s Gross Domestic Product (GDP) to $900 billion by 2025.

Reacting to this, the Muhammadu Buhari Campaign Organisation, however, faulted Atiku as it argued that anyone who promised to restructure the country between six to 12 months “is telling the biggest lie.”

This event might have had adverse effect on trading.

Speaking to journalists during the second Capital Market Committee (CMC) meeting in Lagos, the Acting Director General of the Securities and Exchange Commission (SEC), Mary Uduk, had said that irrespective of the measures SEC might have been putting in place, it would not stop the market from reacting to activities happening in the country.

“In 2008 during the meltdown, the market reacted to the global situation. Therefore, one should be alarmed if something happens during the 2019 election and the market does not react. We should be worried and so irrespective of what we put in place, the market will react,” Uduk said.

Analysts, however, have expressed concerns about the state of the market, adding that the volatility being experienced in the market could continue till after the 2019 elections.

They noted that the growth problem, increasing inflation, unemployment and excruciating debt service facing the country at the moment should be dealt with to ensure a more stable economy.

Chief Executive Officer, Financial Derivatives Limited, Bismarck Rewane, speaking during a Business morning programme on Channels Television recently, said although both parties have well-drilled programmes to drive the nation’s economy forward, there is urgent need to address the fundamental issues dogging the nation’s economy.

His words: “Nigeria is growing below its population and none of the programmes so far has talked about how to improve labour productivity, which is -0.3 per cent and if you do not deal with labour productivity, you will not improve production output optimally. Secondly, there is still a recessionary gap even though we are not in recession.

Thirdly, there is increasing inflation and inflation is targeted to go up to as high as 13.5 per cent some time next year. How would you deal with that inflation?

Then the big Pandora in the room, unemployment and under-employment, that figure so far has not been released but when it is, what are the odds that it will go much higher? And then Nigeria has a debt service, which is not too high but it is excruciating. Nigeria has been borrowing to spend and not borrowing to invest.

There is a big difference between borrowing and spending. And so investors and analysts will be looking at the various programmes to address the aforementioned and not just by talking cheaply.”

A former President of Shareholders Association, Timothy Adesiyan, linked the situation to heightened political anxiety and weak consumer spending power.

“The market performance this year has been very low in the sense that the economy is unstable and people hardly have money to eat not to talk of buying shares as the prices of shares keep crashing. For example, Lafarge shares sold for N50 is now over N50.

That is too high for shareholders. We are all praying that the elections should come and go so that whoever wins will bring this country back to its glory because right now, the economy is in shambles and people are not happy,” Adesiyan said.

The Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, explained that the current situation is not abnormal because the market is responding to the political economic environment.
Chukwu said:

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“The market has been on the downward trend since the second quarter of this year and as we approach elections, market volatility is meant to happen or will increase, depending on how the political environment will shape up.

We do not know who is likely to win the election but there is a lot of volatility in speculative instruments, foreign portfolio investors will go, investors will come to the market when they think there are bargaining opportunities.

So the reality is that there will be a lot of instability until after the elections and so, what is happening now is not abnormal but it is a situation where the market is responding to the political economic environment.

According to him, if the two major political parties conduct themselves in a way that give the citizens that elections will be free and fair; and if INEC (Independent  National Electoral Commission) gives the voters confidence that the elections will be free and fair, that could go a long way in bringing calm to the investor community and we will then achieve some level of stability but ultimately we should begin to see improved recovery after the elections.”

For his part, Chief Executive Officer, APT Securities, Kurfi Garba, said the foreign investors exited the market because of the uncertainty in the economy, adding that there is need to get the institutional investors and foreign investors back to the market.

“The primary elections of the two parties held in October. So the decline seen in October was because most of the foreign investors ran away because there was uncertainty. Both parties brought out strong competitors, which is really hard to decide who will win at the end of the day.

And once there is a bit of uncertainty, the market does not do well. The market wants to see a situation where one can be able to predict the likely winner. Looking at the contestants’ antecedents, it will be very difficult to predict which one will win and so when there is uncertainty, it affects the market because it works with certainty.

For the market to recover, we need to get either the institutional investors or foreign investors to come back but we have been seeing exit of the foreign investors and we all know they have much liquidity and when you see them, you see volumes and when you see volumes, definitely you see prices rising high,” Kurfi said.