Concerns over the Nigerian stock exchange market – a barometer for the Nigerian economy –is heightening as outlook dampens on prevailing negative sentiment of foreign and domestic investors.
Investors participation and exposure as measured by value of transactions on the nation’s bourse dipped to its 3-year low in November 2019 characterised by capital flight after almost doubling in 2017 after the Nigerian economy exited recession in 2016 which saw more inflow into the market.
Exposure in the equity market fell by 21 per cent halting a 2-year growth in 2017 and 2018 respectively as total transaction stood at N1.8 trillion against N2.27 trillion in the corresponding period of 2018. The period saw domestic retail and institutional investor take caution as transactions of both classes of investors dipped in 2019. Domestic retail investors transacted N452.85 billion in value compared to N496.72 billion in 11 months into 2018. Meanwhile, institutional investors transaction N467.85 billion as against N622.80 in the same period.
More importantly, is the activities of foreign portfolio investors who are the major drivers of prices of stocks on the equity market. During the period, transaction of FPI amounted to N879.40 billion, however, foreign outflow accounted for 55 percent of this value.
Sadly, fiscal and monetary policies in the previous year was not able to restore confidence among investors has the All-share index – an indicator of market performance – closed 2019 at -14.6 percent.
This has seen the market maintain a two consecutive years of negative returns to investors after in 2018 ASI closed at some -17 percent. This means investors on the exchange have seen their holdings shed cumulatively some 31 percent in 2 years.
Major highlights that shaped the behaviour of investors in 2019 included the general elections which investors hoped could have turned out differently, CBN’s aggressive moves to increase lending to the private sector of the economy which included a mandatory 65 percent LDR by banks, OMO ban on corporates and individuals and reduction other income sources of bank (transfer transaction cost, POS transaction cost), and federal government protectionist moves to boost local production (border closure).
With low confidence among investors, President Buhari would have to hasten reforms necessary to boost the economy and increase investors’ confidence.
Outlook for the stock market in 2020 remain bleak. Amid infrastructure woes, corporate earnings have not been really impressive which has made investors less pessimistic about the market which is one of the cheapest among its frontier and emerging market peers. This is coupled with Moody’s downgrade review in the Nigerian economy on expectations that real GDP growth will remain weak amid other pressing issues.
