Nigerian equities market drooped by N1.904 trillion in the third quarter (Q3) of the year following heightened political tension in the country. The equities market in Q3 experienced volatility due to rising political uncertainties and oil price, were economy has no clear direction and reform policy to stimulate activities that will drive growth as well as soft investor sentiment towards frontier and emerging market assets..
Consequently, the All Shares Index (ASI) in Q3 declined by 14.40 per cent to close at 32,766.37 points on September 28, 2018 from 38,278.55 points at which it opened trading in June, 2018. In the same vein, market capitalisation decreased by N1.904 trillion to close the quarter at N11.962 trillion.
On a quarter basis, the stocks market closed the first quarter with a gain of 8.53 per cent, but revised the gains in second and third quarter with a decline of 7.77 per cent and 14.40 per cent, respectively.
All sectors indices closed in the red, with the Industrial Goods index posting the largest loss of 23.90 per cent. Consumer Goods followed with a quarterly decline of 18.26 per cent, while Insurance index depreciated by 16.73 per cent. Banking index shed by 13.61 per cent, while Oil and Gas went down by 10.99 per cent in third quarter.
As shown in the Nigerian Stock Exchange (NSE) Foreign Portfolio Investor activity report for July, total transactions held by foreign investors dropped by 64.68 per cent to N36.17 billion, against N102.41 billion in the previous month. Also, foreign players’ proportion of total trades on the exchange dropped to 24.76 per cent, from 54.54 per cent in the previous month, which is also well-below the monthly average of 50.47 per cent recorded so far this year.
However, it is worth stating that inflow of N19.83 billion was recorded during the review period, against N16.34 billion worth of outflows recorded in June. Total domestic transactions in July, as shown in the NSE’s report, accounted for 75.24 per cent of total transactions held in the month, with month-on-month growth of 28.73 per cent to N109.90 billion.
Speaking on market performance in third quarter, the managing director of Highcap Securities Limited, Mr. David Adonri said that the market witnessed a lot of withdrawal from equities by investors as a result of dwindling investor’s confidence which can be linked to the increasing country risk caused by political uncertainty as the country drive towards the general election and reaction to macro-economic indicators especially the comment by the Monetary Policy Committee that the economy can slide into recession in due course if certain things are not done in the economy.
According to him, for instance, the headline inflation has started to increase and the rate of decline of inflation rate has also diminished and the growth rate of the economy is no longer increasing compared to the previous quarter. Those are some of the factors that adversely affected investor’s confidence in the economy. Otherwise, there are other positives that ought to give confidence in the economy like the foreign exchange rate and monetary policy rate has been stable.
Analysts at United Capital Plc stated that with the performance of the stock market declining, the Nigerian bourse is by far one of the worst performing across emerging and frontier markets.
According to them, nonetheless, we reiterate that opportunities in the equities space are for patient, discerning investors who are ready to hunt bargains on fundamentally solid stocks for long-term prospects.
They advised investors not to get derailed by the bearish outlook that has clearly characterized market performance since July 2018, saying that “we maintain that these temporary setbacks have typically been followed by recoveries.”
They pointed out that the crystallization of the potential risks, especially in relation to pre-election uncertainties, presents an opportunity for investors with a medium to long-term horizon to hunt for bargains immediately the market bottoms out.
They urged investors to choose stocks with consistent dividend profiles, adding that despite pressure in the polity, corporate earnings are unlikely to be overly negative in light of the recovery in the broader economy.
“Hence, bottom line numbers for some companies within our coverage universe are set to improve. Accordingly, notwithstanding the distraction in the political climate, we are of the view that investing in stocks with consistent dividend payment profile, stable earnings, and stock market liquidity is clearly strategic”, they said.
Chief operating officer of InvestData Limited, Mr. Ambrose Omordion said that since the rout started at the tail end of January, the Nigerian market has lost 14.32 per cent, one of the worst performing within this period, globally.
He added that “with no fundamental driver to boost investor sentiment on the horizon, we believe the current weak performance will persist, although we expect speculative trading to shape activities pending the completion of the general elections in 2019.”
He however said that the pullback or decline in the market is creating opportunities for traders and investors to take advantage of the low-price regime to position for expected third quarter earnings reports, in the midst of continued selloffs and political risk, especially as shadow elections by political parties kick off any moment from now.
He advised investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst mixed company, economic and market fundamental.