Foreign and domestic investors show displeasure in the current operating environment of the economy, a situation which is impacting negatively on the Nigerian capital market, particularly the stock market.
While sell-offs in 2018 was largely driven by pre-election risks, one would have expected the stock market to rebound, hence returning value for investors. However, this has not been the case after the Nigeria all share index (ASI) began nose diving on the back of dissatisfaction in election outcomes and investors’ caution on fiscal policy directions.
According to data compiled from Bloomberg, the Nigeria equity market has maintained a bearish trend since 2019 inception, eroding -12.95 percent of investors total market value.
To this end, analysts have suggested that while the stock market is still undervalued when compared with other markets in sub-Saharan Africa, sparking and sustaining boost will largely depend on aggressive reforms in the power and oil sector.
Going forward, analysts remain pessimistic towards the Nigeria equity market on the back of sluggish fiscal stance in determining economy direction and macroeconomic exposure to global shock.
“I think the market will remain choppy until we see bold policy statements and reforms from the fiscal authorities,” Gbolahan Ologunro, equity analyst at CSL stockbrokers, noted.
Due to power challenges coupled with other factors in the economy, Nigeria is at a cost comparative disadvantage when compared with peers, hence putting a strain on listed company potential earnings.
Experts have asked the new ministers to imperatively implement a power sector reform, to include the conversion of the N1 trillion power sector debts into equity and adoption of a cost-reflective tariff.
In the last 10 years, investors in the nation’s capital market have continued to demonstrate low appetite towards shares of companies in Nigeria’s oil and gas downstream sector, thanks to plethora of challenges, which have virtually wiped out the margins of the oil marketing and trading companies, as well as other importers of petroleum products.
“The government needs to create the necessary business environment through price liberalisation and strong independent regulation. In addition, challenges around pipeline infrastructure, technology, supply consistency and capital need to be addressed,” PwC said in its report titled ‘Nigeria: looking beyond oil.’
DAVID IBIDAPO
