Investors in the Nigerian equities market recorded a decline of N688 billion in their investments in the month of August, as the bears sustained their grip on the local bourse following the sell- off that pervaded the stock market, as political tension heightened.
The bears dominated the stocks market performance for the month of August with high capitalized stocks recorded heavy losses. The market capitalization, which represents the aggregate value of all the companies or stocks quoted on the Exchange fell by N668 billion from N13.410 trillion at the end of July, to N12.722 trillion on August 31, 2018.
Similarly, the NSE All-Share Index fell by 5.86 per cent to 34,848.45 points on August 31, 2018, down from 37,017.78 points recorded on July 31, 2018. All of the sectoral indices closed red, except for the ASeM, which remained unchanged at 809.92 basis points.
The biggest decline was suffered by the banking index, which lost 13.72 per cent, followed by the NSE Corporate Governance index, with 7.84 per cent, while Consumer Goods shed 6.84 per cent.
Industrial Goods shed 6.35 per cent, the NSE 30 index declined by 6.23 cent during the month, the Mainboard slipped by 6.22 per cent, insurance index down by 5.99 per cent, Oil & Gas depreciated by 5.69 per cent, Premium Board declined by 5.31 per cent and NSE Lotus Islamic Index down by 0.34 per cent.
Data from the National Bureau of Statistics, released during the month, showed that the domestic economy expanded for the fifth consecutive quarter, with real GDP growing by 1.50 per cent year-on-year verse 1.95 per cent year-on-year in the previous quarter and 0.72 per cent year-on-year in second quarter, 2017.
Of the four weeks trading sessions, three weeks closed in the red, as risk-off sentiments in emerging markets’ risky assets continued to drive selloffs.
Stocks market analysts attributed the weak performance of the equity market so far in 2018 to the pullback of some foreign investors from the market due to uncertainty ahead of next year’s general elections and the rising global yields which are leading to reallocation of portfolio funds away from the equity market.
The recent second quarter mixed performance of listed companies with many consumer goods companies performing below market and analysts’ expectations should not be surprising as investors and consumer confidence are falling. This situation has expectedly heightened the ongoing selloffs in the market as the political risk continues to escalate on a daily basis, especially with the heightening anxiety over what could happen during and after party’s primaries and ahead of the presidential election in February 2019.
Meanwhile, Nigeria’s foreign reserves hit a four-month low during the month at $46.81 billion, due to persistent drawdown and increasing investment withdrawals by foreign investors, as well as the improved yields in developed economies with their central banks recently hiking rates.
The Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) has retained the retained the benchmark MPR at 14 per cent at every meeting since June 2016 as it pursued its objective of single-digit inflation rate.
According to the latest Domestic & Foreign Portfolio Participation report by the NSE for June, total transactions on the bourse declined by 41 per cent month-on-month to N187.78 billion, with both foreign and domestic transactions dropping by 46.92 per cent and 31.88 per cent, to N102.41 billion, and N85.37 billion, respectively. On foreign flows, the rate of foreign outflows reduced significantly to N54.45 billion, from the record-high N130.89 billion in May.
Chief relationship officer/stockbroker with Foresight Securities and Investment, Mr. Charles Fakrogha, attributed the downturn to the general lull in the macro-economy, the security situation and the uncertainty in the political space. He further stated that foreign investors are also selling off.
The chairman of Association of Stockbroking Houses of Nigeria (ASHON), Chief Patrick Ezeagu, said, “Perhaps we may remind the political class that uncertainties and all sorts of insecurities that currently pervade our country affect investors’ sentiments, asset valuations, market and country risk profile and portfolio allocation decisions. In recent times, trading statistics on the securities markets in Nigeria have been reflecting investors’ apathy to unprecedented level of tension that portends likely breakdown of law and order in the 2019 general elections.”
He further said, “It is an unassailable investor-behaviour that bad news trigger market panic and investors over-react to such news. As the country’s economic barometers, the securities markets in Nigeria have continued to reflect investors’ apprehensions to instability in the political and economic landscape through all their indices.
“This has largely accounted for the inability of our market to fully recover from the effects of the 2008 financial crisis, notwithstanding the efforts made by the regulators and operators to fully revive the market. There is clear and present danger if the trend continues.”
On the market outlook, analysts at Cordros capital said, “our outlook for equities in the near-to-medium term remains conservative, in the absence of a near term one-off positive catalyst except for potential better-than-expected second quarter corporate earnings, more so, amidst brewing political concerns. However, stable macro-economic fundamentals, in addition to the likelihood of external jitters easing remain supportive of market recovery in the long term.”
For United Capital Limited, said “looking back at the first half of 2018, we observe that though macro factors have aligned with our base case expectations, dynamics in the global space is changing due to heightened trade tensions and aggressive policy stance by the US Fed. Also, political risk in the local economy is on the rise ahead of the 2019 election. Hence, the interplay of rising geopolitical uncertainties and improving macro fundamentals is ticking our projection away from the base in favour of the bear case.
“Accordingly, we adjust our base case scenario estimate to 4.6 per cent with the assumption that the positive impact of improved earnings, sustained recovery and the New Multi-Fund structure for Pension Fund Administrators (PFAs) will slightly offset the downside of global and domestic market politicking in second half of the year,” the firm said.