Stock market sheds N400bn as policy delay, forex uncertainty bite

A combination of factors including delay in economic direction and uncertainty in the foreign exchange market, among others, may have cost investors a whopping N400 billion in value terms in the last six months, BusinessDay analysis has shown.

The development is responsible for the redirection of investments by asset managers from equities to money market instruments such as treasury bills and other tradable instruments like FGN bonds, mutual fund, and state bond.

Their asset mix shows a 9.17 percent decline in equities investment from the December 2014 level of N603.04billion to N547.76billion as at May 2015.

Also in the same period, fund flow into Money Market increased by 1.49 percent, from N541.52billion to N549.58billion; FGN Bond increased by 4.95 percent to N2.515trillion from N2.396trillion; while investment in Treasury Bills (T-Bills) rose by 62.51 percent, from N497.78billion to N808.95billion.

Asset managers also favoured Mutual Funds with investible funds increase of 9.60 percent, from N21.03billion to N23.05billion; while State Bonds saw a 5.83 percent increase in asset managers stake from N172.40billion to N182.46billion.

Returns at the Nigerian stock market are not attracting foreign and institutional buyers like pension funds. Currently, equities returns which stood in excess of minus 7 percent became worse lately, in the absence of a firm policy direction, making investors jittery.

“The market remains bearish as investors seek shelter in alternative asset classes. Annual results released in June show  mixed performance. Unimpressive second quarter (Q2) and half-year (H2) results may further dampen investor confidence,” according to analysts at Lagos-based Financial Derivatives Company Limited.

The NSE and MSCI frontier markets are underperforming global equity market index.

“YtD return on the NSE ASI adjusted for naira depreciation. Market may dip further, following disappointing H1 earnings. Cabinet delay is increasing uncertainty and negative sentiment.

“Contrary to expectations, President Muhammadu Buhari’s one month in office was inactive. There was no policy statement or leadership team,” the analysts added.

In the month of May, foreign portfolio investment (FPI) at the Lagos bourse decreased to N79.77billion, down 23.26 percent from N103.95billion in the preceding month of April.

The NSE All Share Index (ASI) which stood at 33,943.29 points as at January 5, 2015 declined to 31,768.28 points as at Thursday July 9, 2015. Also in the same period, the market capitalisation of listed equities has declined from record highs of N11.237trillion to N10.844trillion.

FBN Capital analysts said the Lagos bourse has been the more erratic since this year, despite an election-driven surge.

“The NSEASI has since been in broad retreat on a combination of poor company results and a sense of drift since the handover to the new administration on 29 May,” the analysts said.

“The APC 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.

“ We have often said that its largest challenge is not fiscal but institutional (the willingness of the legislature and the executive, both APC dominated, to work together). It gives us no pleasure to point out that our call has been vindicated”, FBN Capital analysts said.

Analysts at United Capital plc said, “CBN’s recent moves have created uncertainty in the FX market and even affected supply in the market. Investors have no basis to project a budge by the CBN and this has compounded the misty macroeconomic outlook, pushing investors to stand on the sideline, even as active investors are mostly speculative.

“This is expected to persist, though expectation and reaction to half-year (H1) numbers might be a breather to the bearish sentiment, coupled with bargain hunting buoyed by attractive pricing.”

Iheanyi Nwachukwu