It is barely one week to the 2019 presidential elections and
as rightly predicted by financial analysts, the economy has taken the back seat
for heightened political activities across the country.
But that did not just happen, the better part of 2018
clearly indicated that the economy had taken a shock from the early kick-off of
political activities, following the indication of interest by President
Muhammadu Buhari earlier in the year.
The Nigerian Stock Exchange (NSE) had its crucial indicators
depreciated by 19.77 per cent due to uncertainties surrounding the elections.
The exchange which was named the third best performing stock
exchange in the world in 2017 with over 43 per cent return-on-investment
performed dismally in 2018.
A breakdown of the foreign investment outflow from the
exchange between January and September 2018 showed that a total of N513.49
billion left the country during the period. This amounted to 63 per cent
increase in total outflow compared to N315.04 billion withdrawn in the same
period in 2017.
According to the National Bureau of Statistics (NBS), the
total value of capital importation into Nigeria reduced to 2.855 billion
dollars in the third quarter.
The NBS in its “Nigeria Capital Importation (Q3 2018)’’
report states that the figure represents a 48.21 per cent decrease compared to
the second quarter and 31.12 per cent decrease compared to the third quarter of
2017.
It said the largest amount of capital importation by type
was received through portfolio investment, which accounted for 60.5 per cent
(1.723 billion dollars) of the total capital import.
“This was followed by other investments which account for
21.07 per cent (601.53 million dollars) of the total capital importation in the
period under review.
And then Foreign Direct Investment (FDI) accounts for 18.58
per cent (530.63 million dollars) of the total capital imported in the third
quarter.
Investment experts attributed the sell-offs and the
attendant foreign investment outflows to political risks, saying the trend
would be sustained throughout the election period. Mr Sola Oni, a chartered
stockbroker and Chief Executive Officer, Sofunix Investment and Communications,
said massive share dumping by nervous portfolio investors and their Nigerian
counterparts who were apprehensive over the 2019 general election led to the
trend.
He said the development was reinforced by unguarded
utterances of the political class.
The Managing Director/CEO of Cowry Asset Management, a
Lagos-based investment banking firm in an interview with Daily Trust, said:
“The country entered into a pre-term political situation, we saw the onset of
political activities much earlier than was predicted.
“The earlier part of the year witnessed a lot of rumbling in
the ruling party which scared foreign investors away from the market.”
He said Nigeria is facing a national election that draws
resources away from every other thing, noting that at periods of uncertainty, investors do not
invest in variable assets and that is where we are today as a country.
“Our economic fundamentals are strong but our political
outlook is clouded and until that is resolved – which will be after the
election – investors are not going to be bullish with Nigeria’s variable
instruments,” he added.
Also reviewing the performance of the market in 2018, the
Chief Executive Officer of the NSE, Oscar Onyema, said the NSE’s fixed income increased by
11.75 percent to N10.17 trillion from N9.10 trillion in 2017, while the
turnover also increased by 22.34 percent, compared to 2017 driven by a search
for an alternative asset class as opposed to equities.
According to Onyema, capital raising by corporate entities
declined by 39.09 percent, with a total of N31. 47 billion raised in 2018,
while the market also witnessed 50.53 percent increase in foreign outflows
during the period from N402.26 billion in 2017 to N605.54 billion in 2018.
He attributed the trend to attenuated foreign participation
due to shift to higher yielding assets with lower risks in developed countries,
coupled with the impending political risks in the coming elections.
On investor participation, the NSE boss said foreign
investors accounted for 50.87 percent participation in 2018, while domestic
investors accounted for 49.13 percent.
Also commenting on market outlook for 2019, Onyema noted
that investor sentiments in the first half of the year will be driven largely
by uncertainty in oil prices as well as the general elections.
His words, “Accordingly, we anticipate volatility in
equities markets in the first half of 2019, with enhanced stability
post-elections. We believe swift approval and implementation of the 2019 budget
will have a positive impact on companies’ earnings as well as consumer
spending. Therefore, we expect an uptick in market activity during the second
half of 2019.
“To enhance our listing prospects, we have strengthened our
government’s engagement efforts on privatisation and listing of state owned
enterprises, and we expect to take advantage of opportunities within this space
during the year,” he said.
A financial expert, Prof. Uche Uwaleke, expressed optimism
that the Nigerian stock market would rebound by the second quarter of 2019.
Uwaleke, the Head of Banking and Finance Department,
Nasarawa State University, Keffi, noted that his optimism was based on reduced
political risks, return of foreign investors, favourable oil price and strong
fundamentals.
He said investors should not panic but recognise that the
stock market, like every other market, is prone to business cycles of up and
down.
Uwaleke said investors must be encouraged not to panic and
be selling down but be patient and wait for the market to rebound possibly
after the elections next year.
He said the major reason for the downturn was the exit of
foreign investors occasioned by political uncertainties ahead of the elections.
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