Investors lose N729b to 2019 election anxiety

Political intrigues ahead of the 2019 general elections have made stock market investors lose N729 billion in three months of decline.This is contrary to general expectations of positive earnings in 2018, as the once-troubled economy emerged from a recession at the end of 2017. The months of decline occurred between February and April, after a January rise triggered strong anticipations amid improving macro-economic indicators in domestic and global economies.

Analysts, operators and investors, at the weekend, linked the decline to “extraneous factors” and “profit taking”, because the subsisting market’s “fundamentals and upbeat economic data failed to support a much-expected healthy stock price recovery.”

For persons conversant with the workings of the market, this gives credence to the fact that investors are concerned about the political risk associated with the coming 2019 general elections, which is linked to the decision by investors and traders (mostly foreign) to sit on the fence.After posting a 26 per cent loss in 2016, the Nigerian equities market gathered momentum in 2017 with an increase of N4.5tr in market capitalisation. This was from N9,158tr at which it opened the year on January 3, 2017 to N13.519tr as at December 28, 2017. The All-Share Index (NSE ASI) rose by 43 per cent during the year under review from 26, 616.89 to 37,990.74.

The rally extended to the current financial year, as market capitalisation of listed equities stood at N13,617tr as at January 2, 2018 and rose by N2,074tr or 13.2 per cent to N15,691tr as at Friday, January 26, 2018. Also, the All-Share Index, which opened the year 2018 at 38,264.79 rose by 5,508 points or 12.6 per cent to close at 43,773.76. Surprisingly, after the January and mid-February rally, the market recorded unprecedented reversal in performance contrary to analysts’ predictions.The capitalisation, which stood at N15,549tr as at Wednesday, February 28, 2018, now stands at N14,820tr as at Thursday, May 10, 2018, representing N729b or 4.9 per cent loss.

Also, the All-Share Index declined by 2,415.6 points or 5.9 per cent to 40,914.94 from 43,330.54, achieved as at February 28, 2018. The analysts blamed the flattish look of the market on the tension that has plagued the political space in recent times. They said killings by Fulani herdsmen and cases of political thuggery aggravated apathy in investment, especially on the part of the foreign investors.

There are signs that the political situation is worsening. Ward congresses of the ruling party held across the country last week were marred by conflict, resulting in cancellation and rescheduling of polls in some states including Ekiti. Ekiti and Osun are also expected to hold gubernatorial polls this year in an atmosphere of tension.

The Chief Research Officer of Investdata Consulting Limited, Ambrose Omodion, said investors are currently walking in fear of political risks, believing that violence in the country could trigger panic and massive dumping of shares.He said the development has caused indifference and low investor confidence. Consequently, foreign investors that play a dominant role have resorted to massive sell-off of shares.

“The weak response to earnings is evidence of low liquidity, especially given that at April’s end, Nigeria’s 2018 budget is still facing so much uncertainty, leaving the economy to run entirely on monetary stimulus.”The investment analyst, however, argued that the sustained low valuation in the market could trigger high demand for stocks, as markets all over the world are cyclical in nature.

“There is need to invest wisely, using bids, offers and volume when taking decisions as a trader. Managing risk and protecting capital at this point is very important. So, you will be able to determine when to buy or sell by watching the stocks and the market, using technical analysis.

“Let numbers released by the companies guide your decision and time to stay in that position. As the market phase is changing, it is time to combine fundamentals and technical tools to take decisions by knowing the support and resistant levels to reposition or exit any position.”He also stressed the need for government to adopt pragmatic strategies that would aid peaceful campaigns and stabilise the polity, to ensure a sustainable market rebound.

The Managing Director of Highcap Securities Limited, Imafidon Adonri, explained that insecurity and social disorder are disincentives to investment. “Nigeria is currently experiencing these. They must be tackled with seriousness for investors’ confidence to increase,” he said.

According to him, “Those who control the polity, especially the politicians and the executives, need to be upright and follow due process and perform well, so that the polity will be calm going into the election. They do not need to overheat it. They need not come up with frivolities that will cause conflict and crises, because these are the things that affect the capital market.”

He suggested law enforcement agencies be more proactive, identify flashpoints and ensure a robust security arrangement is implemented to prevent breakdown of law and order.The Managing Director of Crane Securities Limited, Mike Ezeh, warned that foreign investors are already selling off their shares due to uncertainty in the political space.

“Our political leaders are toying with a lot of things. By the time we sit down and take stock of the effect of all these killings, we will know what we have done to our national psyche. Looking at it from the foreign investors’ perspective, it is only the daring ones that come at this time of uncertainty and fear.

“You keep your treasure where your heart is. Locally, there is apathy towards the market. People are scared of investing. They have even resorted to selling, out of fear of the unknown. The Federal Government should stop the killings. They are the only ones that have the capacity do so,” he said.

The Publicity Secretary of the Independent Shareholders Association of Nigeria, Moses Igbrude, maintained the same argument.He said: “Our economy is not developed. Whatever happens in the political arena must have an effect on the market. There is apathy in the market. The foreign investors that dominate the market have exited their portfolio. And no matter the good performance of these listed companies, investors will not want to stake their funds at a time like this.

“The foreign investors are not ready to develop the market. They buy when the market is appreciating and sell off when there are perceived economic issues, because they are not long-term investors, and that makes the market volatile.”

He urged regulators to intensify effort on investor education, to increase local participation in the market.Also, the National Coordinator, Constance Shareholders Association, Mallam Shehu Mikail, admitted that investors are selling their shares in fear of losing their investments to political unrest.

“There is panic in the system. The drama we have witnessed so far from states that had their election is a disincentive to investment, and it is already sending wrong signal to investors,” he said. The market will remain in a downward trend until investors are assured their investment is protected, he added.