Stock Market Loses N320bn on Profit-taking, Political Uncertainties

With two weeks into the second half (H2) of the year, the Nigerian equities market has lost a total of N320 billion following weak demand by investors who are adopting cautious trading.

The stock market, which ended 2017, as the third best performer, had sustained that uptrend in the beginning of 2018. But profit-taking that followed thereafter pared the gains and made the market to close the first half (H1) of the year with a marginal growth of 0.09 per cent.  

However, the factors that fuelled the persistent bear run since the second quarter of the year have continued, leading to a decline of N320 billion in the market capitalisation in the first two weeks of H2.

Specifically, the market capitalisation fell from N13.866 trillion to N13.546 trillion, indicating a decline of 2.3 per cent.

Although many analysts believe that stocks in the Nigerian market are relatively cheaper, the market has continued its downward trend as some investors have remained on the sidelines watching developments in the political environment.

Analysts at Afrinvest Research recently said five factors would drive the market in H2 of 2018. They cited the factors as new listings, budget implementation, elections uncertainties, sustained liquidity in forex exchange (FX), and corporate earnings.

According to the analysts, the general election uncertainties would make investors to adopt cautious trading in equities.

“In line with historical trend, investors tend to reduce exposure to risky assets in the year leading up to general elections and this is similar to the situation in Nigeria.

“The one thing investors detest is “uncertainty” and as such, this downside risk is expected to worsen as 2019 general election draws closer,” they said.

They added that while the delayed passage of the 2018 budget could potentially have stalled some of the expected benefits associated with the budget implementation, “we believe sufficient implementation will have a feedback positive impact on companies’ earnings as well as consumer spending.”

Speaking on the impact of forex market, Afrinvest said since the launch of the Investors’ & Exporters’ FX window in April 2017, which resulted in increased foreign portfolio inflows into the domestic market, the Central Bank of Nigeria (CBN) has been able to sustain liquidity via weekly retail and wholesale interventions.

“However, while we note that FX liquidity in the market has remained somewhat adequate, the continued focus of the CBN on keeping rates within a particular band, has weighed on investors’ confidence. 

“Furthermore, the fact that the CBN remains the major supplier of FX to the market has also weighed on sentiment and this could continue to pressure foreign investor sentiment, which will have a feedback negative impact on the equities market,” they said.