A combination of macroeconmic and political factors have forced the Nigerian stock market into massive slide as the market suffered its worst week losses since after the inauguration of the President Muhammadu Buhari’s government in May. Investors lost N271.7bn last week as market capitalization of the Nigerian Stock Exchange (NSE) reduced to N10.8trillion.
The market had bounced into a frenzy of bullish run following the successful conduct of the presidential election resulting into massive gains driven by high expectations and positive sentiments.
But the market began flip-flop swings week-on-week and, by June, the negative sentiments became predominant. The market did not record a single gain in the first 10 days of July 2015.
According to investment analysts, the sharp decline in the market performance and the attendant huge losses to investors were due to the overwhelming influence of the difficult macroeconomic environment which dampened investors’ sentiments.
‘’There has been a general weakness in investors’ sentiments arising from the general macroeconomic conditions that have worsened the profitability of quoted companies at the stock exchange’’, Afrinvest Group, a Lagos-based investment banking group, said last weekend.
They had linked the weak sentiment to lack of clear economic policy direction almost two months into the new government. Investors’ sentiments were also said to be dampened with the announcement that ministerial list would not be ready until September, a development which confirmed the earlier position of Renaissance Capital, a world leader in international finance, that 2015 would be a lost year for the Nigerian economy.
Many investment advisers are of the view that risk in an operating environment is better than uncertainty, describing the current operating environment in Nigeria as dangerously uncertain and unpredictable.
At a parley between Central Bank of Nigeria (CBN) and the Lagos Chamber of Commerce and Industry (LCCI) in Lagos, last week, one of the discussants said: ‘’President was ushered into power over a month ago amidst a frenzy of optimism and hope. Unfortunately, all we have seen is a deafening silence on the economy that has got potential investors glued to their cash. The president and his team are yet to provide a visible economic direction for the country leaving potential investors with no choice but to stay out of the market. Some who had shares consider his muteness a bad sign and have also decided to sell-off. Investors hate uncertainty’’.
A cursory look at the movements in the individual sectoral indices showed that the only month-on-month gain was recorded in the NSE Industrial Index with a gain of 1.99 per cent, as some stocks in the Index continue to offer upward potential in their prices. All other sectoral indices recorded month-on-month losses. The highest month-on-month loss was recorded in the NSE Banking Index with a loss of 6.03 per cent, followed by the Insurance Index with a loss of 3.51 per cent.
Analysts at FSDH Merchant Bank Ltd., who also agreed that the operating environment is very unhealthy, said the outlook for July is not going to be better.
‘’We don’t expect a major improvement in the earnings of the quoted companies in second quarter of 2015 (which would have driven a market recovery)’’, one of the analysts said. In fact, the analysts forecast that the market may drop further this month, adding that the policy direction of the Buhari administration may set the path that the equity market would follow in the short term. Vanguard
