With close to six per cent gain posted by the stock market in three trading sessions and Nigerian stocks posting the best returns in sub-Saharan Africa (SSA), stakeholders at the weekend said the market outlook remains certain in the near term.
The stakeholders, while reviewing President Bola Tinubu’s proposed economic reforms and expected impact on the capital market argued that the search for respite may come sooner if the spikes witnessed in the market so far are backed with the speedy implementation of needed reforms.
According to them, there is a need to adopt appropriate pragmatic strategies that would aid faster execution of reforms and stability of polity to ensure sustainable market rebound.
The stakeholders, who argued that the market is information-driven, explained that with the little sign of recovery and capital appreciation witnessed in the market, government at all levels must be cautious and avoid any actions and decisions that could send wrong signals and erode investors’ confidence.
The stock market had returned a six per cent gain within three trading sessions as market capitalisation increased by N1,550 trillion from N28,844 trillion recorded on Friday, May 26, 2023, to N30,394 trillion last week Friday. Also, the all-share index (ASI) increased by 2,846.62 points from 52,973.88 to 55,820.5.
In comparison, the South African exchange’s ASI gained 3.2 per cent in May while the Ghana Stock Exchange (GSE) composite index returned 2.76 percent. Kenya lost 18.66 per cent in the same period.
In April 2023 investors’ fortunes had depreciated by N1.74 due to lingering economic challenges, uncertainty, inflation and insecurity.
The month came with scanty trading sessions owing to public holidays with the bears outperforming the bulls on most of the days, which led to a sustained month-on-month decline of about N1.74 trillion.
Precisely, the market capitalisation, which opened the month of April at N30.24 trillion, depreciated by N1.74 trillion to close at N28.5 trillion. The All-share index (ASI) equally declined by 3.4 per cent from 55.508.61 to 54, 403. 51.
Also, the stock market resumed May trading with N58 billion in losses. Specifically, at the re-opening of transactions for May, ASI fell by 107.03 points, representing a decline of 0.20 per cent to close at 52,296.48 points. Accordingly, investors lost N58 billion in value as market capitalisation declined to N28.476 trillion.
The market had declined by 1.9 per cent and 0.8 per cent in March and April respectively amid profit-taking by investors, uncertainties about the build-up of the February elections as well as rising inflation.
Head Equity, Planet Capital, Paul Uzum said Tinubu’s actions so far are an indication that he is being guided by brilliant economists to jump-start the economy.
However, he argued that speedy implementation is what will sustain the current bullish tempo.
“This announcement is enough to spark up the financial markets. That’s the cause of the spikes you have seen in recent days. It was on paper yesterday that the CBN has devalued the naira to N631.
“Although the CBN had denied it, both subsidy removal and currency devaluation are two policies that will help balance the FG budget going forward. We cannot continue to print money. The approach does not augur well for the economy.”
National Coordinator of Independence Shareholders Association of Nigerian (ISAN), Moses Igbrude, said if the President’s promises are met, Nigeria would become an investment hub because he would nip those policies militating against the progress of the country in the bud.
He pointed out that the economy is in dire need of appropriate reforms and policy direction that will help jump-start the economy.
“There are many retrogressive policies that are disincentive to investments. If the President and his team will garner the political will to pursue these reforms vigorously, Nigeria will become a great country again.”
Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella said the president’s speech will encourage foreign investments in both direct and portfolio capital as their major concerns are about taxes and profit repatriation.
He added that the president has captured the implementation by stating the unification of the exchange rate and the need to reorganise the central bank activities.
Also speaking, Group Chief Executive Officer of the Nigerian ExchangeGroup (NGX Group), Oscar Onyema expressed optimism that the nation’s economy will witness more investment inflows.
Onyema lamented that foreign transactions on the exchange decreased by 38.5 per cent from N616 billion in 2007 to N379 billion in 2022 owing to the forex constraints in the country.
According to him, foreign transactions accounted for about 16 per cent of the total transactions in the first four months of 2023 while total foreign transactions currently stand at N62.18 billion in the same period.
However, Onyema expressed the hope that there are bound to be more investment inflows into the country in the near future.
“Money goes to the least resistant places where it can get the best risk adjustment returns without unnecessary hassles because there is competition across the globe.
“There has been an outflow of foreign portfolio investments predominantly in the last eight years and more than half of our markets are outside of America, but with these policy changes, you can begin to understand why we are very optimistic that these flows will come back and with it, attract additional flows”, Onyema said.
Indeed, the nation’s capital market has recorded an unprecedented lull due to volatile forex and macroeconomic concerns. Foreign portfolio flows to emerging markets turn
This is despite strategies and strict regulatory frameworks and reforms introduced by the regulators to reposition the market for sustainable growth.
The long reign of bears has become a cause for concern to both retail and foreign. For retail investors, the continuous depreciation in stock prices has become a justification for their apathy to investing in the stock market.
The foreign investors which constituted about 70 percent of participants on the exchange hitherto, are currently holding on to their investments while a few of them with high risk appetite are simply engaged in speculative trading.
An analysis of the Domestic and Foreign Portfolio Investment Report of the Nigerian Exchange Limited (NGX) indicated that total foreign transactions which rose to N99.11 billion in January 2015, plummeted to N24.90 billion as at January 2023.
Similarly, total foreign inflow which stood at 48 per cent in 2015 plummeted to nine per cent as at January 2023.
Tinubu in his inaugural speech declared that industrial policy will utilise the full range of fiscal measures to promote domestic manufacturing and lessen import dependency.
“Electricity will become more accessible and affordable to businesses and homes alike. Power generation should nearly double and transmission and distribution networks improved. We will encourage states to develop local sources as well.
“Local and foreign: our government shall review all their complaints about multiple taxations and various anti-investment inhibitions. We shall ensure that investors and foreign businesses repatriate their hard-earned dividends and profits home.”
Recall that similar enthusiasm greeted former President Muhammadu Buhari’s victory in 2015. Unfortunately, a few years after Buhari’s inauguration, the hope of increased market liquidity and investors’ confidence was dashed as investors could not identify any value addition to the capital market by his policies.
