Since the successful re-election of Nigeria’s incumbent, President Muhamadu Buhari in the February 23 election, the Nigerian stock exchange has failed to return to its 2017 stellar performance as investors prefer to take shield in less risky fixed income market.
This trend is contrary to analyst’s expectation that subdued political risk following the conclusion of the elections and the dissipating risks on interest rate hikes by the U.S Fed (two factors that largely impacted the equities market in 2018) will help trigger a bullish performance in 2019.
The performance of the equities market has seen sell-offs despite the earnings season and the decent dividend announcements that followed. Coincidentally, this is the first time since Africa’s biggest oil producer returned to democracy that a successful presidential election failed to stair up a stock rally.
Since the conclusion of the election, the local bourse has lost on 21 out of the 29 trading days, according to data compiled from the Bloomberg terminal, with the All Share Index shedding 9.4 per cent within this period.
“We believe the bearish performance in the equities market is largely due to weak investors’ sentiment particularly from foreign investors, who have been apathetic towards Nigeria’s risky assets,” Analysts at Lagos-based CSL stockbrokers said in a note.
“Although, we have observed that there has been improved FPI flows since the conclusion of the elections, evidenced by the record activity levels at the Investors & Exporters window, the bulk of the inflows have been directed towards Nigeria’s riskless assets in the money and debt market”, the stockbroking firm noted.
Nigerian stocks are experiencing their worst time as investors pile into the fixed income space neglecting equities despite impressive earning results coming in from publicly listed companies. Nigerian equities have been trading on a negative trajectory of 4.7 per cent to 29,616 points this year.
The rush into risk-free instrument has helped send yields to lower lows. Yields on 0ne year and 10 years bonds averaged 14.12 per cent, according to FMDQ data.
“I think it is only natural reaction talking about asset classes in times of volatility and uncertainty you would find people moving to where they see as safe what they consider safe to a great extent”, said Simpa Adaba—Head, Wealth Management Nigeria, Standard Chartered.
“Also, looking at the Nigerian space, you will clearly understand that a lot of people have a history of equity in Nigeria so there is a flight to safety in times like this” Adaba said in an interview with BusinessDay.
President Buhari, defeated his main challenger and candidate of the People’s Democratic Party (PDP), Atiku Abubakar in the keenly contested presidential election by over 3.9 million.
The 76-year-old northern president has pledged to continue in dishing out structural policies encroached in the Economic and Recovery Growth Plan (ERGP) that will help in fixing the fragile state of the economy that has been predicted by the International Monetary Fund to grow by 2.1 per cent in the full year 2019.
The IMF in its 2019 article IV consultation on Nigeria, noted that growth in Africa’s biggest oil economy is too slow to lift it populace above the poverty clock. The global lender also recommended an increase in oil and power tariffs as well as the scraping of multiple exchange rates that is stalling investments.
In a surprise move, the Central bank in its last monetary policy meeting cut its key interest rate by 0.5 basis points from 14 per cent to 13.5 per cent. A rate the apex bank has held for over three years.
Data obtained from the Nigerian Stock Exchange (NSE) revealed that between September 2018 and February 2019, foreign outflows have consistently outstripped foreign inflows, suggesting that foreign investors have been net sellers of Nigerian equities.
CSL in its note explained that the weak demand for Nigerian assets by foreign investors is on the back of their concerns about the structural issues that have stifled the growth of the Nigerian economy over the past three years. “Additionally, a sentiment from the foreign investor community indicates lack of optimism that the hard decisions on structural reforms will be taken by the re-elected President hence concerns remain on macroeconomic stability, weak operating environment and more importantly, the need to insulate the economy from external shocks emanating from a downturn in oil prices”.
MICHAEL ANI
