As the lull persists on the buy-side of Nigeria’s stock market, long term investors have had their equities portfolio value eroded in excess of N890 billion this year, with no clear relief in the horizon in the short-to-medium term.
The benchmark performance indicator of the Nigerian equities market has been in broad retreat on a combination of factors such as companies’ poor half-year (H1) results and investors’ sense of drift since the handover to the administration of Nigeria’s new president, Muhammadu Buhari, barely two months ago.
Worse hit in the minus 12.92 percent return scenario are stock investors in consumer goods, oil & gas, insurance and other largely capitalised stocks, most of which are in the banking and industrial goods segment at the Nigerian stock market.
“NSE is at risk of further drift and worse”, said the Gregory Kronsten led team of research analysts at Lagos-based FBN Capital.
“The APC (All Progressives Congress political party) assumed power at the end of the transition with a good deal of goodwill with the population and investors. The market is waiting impatiently for new appointments and policies,” the analysts added.
The Nigerian Stock Exchange (NSE) All Share Index (ASI) retreated from a high of 33,943.29 points as at January 5, 2015 to 30,180.27 points recorded Friday July 31, 2015.
Likewise, the market capitalisation of listed equities on the Nigerian bourse declined from record highs of N11.237 trillion as at January 5, 2015 to N10.344 trillion as at last Friday, indicating a value loss of about N893 billion.
As policy inertia triggers a wave of job losses across critical sectors of the Nigerian economy, along with the shrinking wallets of the workforce, it has likewise affected investment across various asset classes, with a spillover on the performance at Customs Street.
Also, with the CBN’s insistence that the naira not be further devalued against the greenback, the now perceived loss of confidence by foreign equity buyers in carrying naira assets, due to rising forex risk, is affecting inflows into the equities market.
As at June 2015, Foreign Portfolio Investment (FPI) transactions decreased to N69.65 billion, a decline of N10.12billion or 12.69 percent, from May 2015 level of N79.77 billion; while domestic transactions increased from N65.68billion to N133.8 billion in the same period, representing an upward movement of 103.71 percent.
In the first-half (H1) of 2015, foreign investors accounted 52.87 percent of equity deals while domestic investors accounted for 47.13 percent.
The total transactions at the nation’s bourse (which include equities sales or liquidation of portfolio investments and equities purchases) increased to N203.45 billion (about $1.04 billion) in June 2015, up 39.88 percent or N58billion, from the May 2015 level of N145.45billion.
Amid these market conditions, some analyst advise stock investors to tread cautiously, as negative sentiments persist in the market, adding that cheap stock prices provide opportunity for long-term position in value stocks.
“While we expect to see some level of position taking in the market with fundamentals and technicals justifying an entry, we think reaction to corporate earnings and profit taking might knock off a possible bullish run,” research analysts at United Capital plc said recently.
Nigeria’s headline inflation rate of 9.2 percent year-on-year (y/y) is now above the official target range and is projected in the latest CBN in-house forecasts to climb to 10.1 percent y/y in October, some analysts observed.
Currently, Nigeria faces an unexciting foreign direct investment (FDI) story, as the largest economy in Africa was the fifth largest beneficiary of gross FDI inflows in 2014, having occupied the number three slot the preceding year.
The H1 results of most companies have shown that the insecurity in the northeastern part of the country, lower disposable incomes and the naira/$ exchange rate have proved difficult for companies to contain.