Alleged political intrigues ahead of the 2019 elections have taken a severe toll on the nation’s stock market, causing investors to lose over N3.43 trillion in nine months of persistent decline.
Many blue-chip companies quoted on the Nigerian Stock Exchange (NSE) have also experienced unprecedented losses, contrary to the general expectations of positive earnings in 2018.
The losses were calculated as at close of trading in May 10, 2018, when the announcement of the ward congresses was made, to the last trading day in January 2019.
Analysts, operators and investors, at the weekend, blamed the persistent lull on perceived risk associated with the coming 2019 general elections, making mostly foreign investors to embark on a massive selloff and consequently exit the market.
According to the stakeholders, since the last eight months when the political activities have been on the upswing, the market has been on the downward trend with a frequent up-and-down weekly movement.
According to them, the decline intensified immediately the news about the crisis-ridden ward congresses broke out since May 2018, after a January rise triggered strong anticipations amid improving macro-economic indicators in domestic and global economies.
The ward congresses of the ruling All Progressives Congress (APC) held across the country during the period were marred by conflict, resulting in cancellation and rescheduling of polls in some states.
The development caused indifference and low investor confidence. Consequently, foreign investors that play a dominant role in the market resorted to a massive sell-off of shares.
Specifically, after the January and mid-February 2018 rally, the market recorded an unprecedented reversal in performance, contrary to analysts’ predictions.
The capitalisation, which stood at N14, 820 trillion as at Thursday May 10, 2018, later stood at N11, 394 trillion as at Thursday January 31, 2019 representing N3.43 trillion or 30.1 per cent loss.
Also, the All-Share Index declined by 10,357.74 points or 33.9 per cent to 30,557.20 from 40,914.94, achieved as at May 10, 2018.
The analysts also blamed the flattish look of the market on the heightening tension in the political environment in recent times, the latest being the alleged illegal suspension of the Chief Justice of Nigeria (CJN), Walter Onnoghen.
This is in spite of warning by some capital market players that politicians should refrain from activities and utterances capable of heating up the polity and causing dire consequences for the capital market.
The Association of Stockbroking Houses of Nigeria (ASHON) had in May, 2018 warned that political uncertainties and all sorts of insecurity that pervaded the country were affecting investors’ sentiments, asset valuations, market and country risk profile as well as portfolio allocation decisions.
The group appealed to the political class to moderate their activities and utterances by acting in such a manner that will engender investors’ confidence in the economy and by extension the capital market.
“Our market is bleeding. Foreign portfolio investors and their indigenous counterparts have embarked on massive sell-down of shares on the Nigerian Stock Exchange with the attendant effect of a gross diminution of share prices despite stellar performances of many listed companies.
“Theories of investors’ behavior have revealed that bad news triggers market panic and investors over-react to such news. As the country’s economic barometers, the exchanges in Nigeria have continued to reflect investors’ apprehensions of instability in the political and economic landscape through all their indices. There is clear and present danger if the trend continues.
“The Nigerian Stock Exchange’s all share index has been sliding since the beginning of the year. Innocent shareholders watch helplessly as the bear market plunders their investment. Studies have shown that there is a correlation between the development of the capital market and economic growth and development of any country.
“As stockbrokers trained to create wealth and manage investments, we hasten to say that projections cannot be made under this atmosphere of systematic risk. Consequently, the country’s risk profile is building up and investment decision is obviously threatened. This explains why investors are panicky,” the association explained.
In his reaction, an independent investor, Amaechi Egbo, expressed regret that the politicians have failed to heed the warning not to heat up the polity.
“The discordant tunes over the removal of the CJN have triggered a pull back in the equity market to halt the bullish run witnessed in the past few days. The announcement has continued to spur massive selloff with tremendous slow down in position taking in blue-chip stocks presently,” he said.
The Publicity Secretary of Independence Shareholders Association of Nigeria, Moses Igbrude, said local and foreign investors had exited the market, waiting to see the outcome of the coming general elections.
“It all started with the crisis that engulfed the ruling party’s primaries, to the threat to remove the Senate president, taking him to the code of court tribunal and now the suspension of the CJN. All these are the factors that have dragged the market to its lowest point of decline,” he added.
The Managing Director of Crane Securities Limited, Mike Ezeh, said a lot of foreign investors had dumped their shares owing to the fear of election consequences. He stated that only peaceful election could restore confidence in the market and spur the expected recovery after the poll.
“The market is information-driven, the hiccups in both the political system and the economic system are always severe and the after effect is always on the market. The planned election has affected the market adversely, resulting in panic buying and panic selling particularly on the part of foreign investors,” he said.
The Managing Director of Highcap Securities, David Adonri said the market had been up and down in reaction to the heat generated by the electioneering activities.
“Occasionally, the market will react generally if the polity is heated and after a while, the market will correct itself. But in recent times, the negative impact has been much more than the positive because if you look at the numbers, the market has declined tremendously from last year not because the fundamentals are weak but in reaction to the escalating political risk.
“The action taken against the CJN elicited a negative reaction from the market and has resulted in massive dumping of shares since last week Monday,” he stated.
The Chief Research Officer of Investdata Consulting, Ambrose Omodion, agreed that the market had been on a persistent downward trend since May 9, 2018 due to the conflict over the ward congresses held in various states.
He said: “A good politician must know how to marry the economy and their offices. From the day the outcome of the ward congress was announced, the crises in different states sent a wrong signal to the investors who became worried. But what really made foreign investors to exit Nigeria was the massive defection, the same situation that affected the market in 2014 is repeating itself.
“After that, the market has struggled to the first week of 2019. Because of the low price attraction ahead of the earning season, people were taking position that most companies will pay dividend because the prices are already low, and suddenly the Federal Government came with the issue of sacking the CJN, and that alone has further sent a wrong signal to the foreigners last week.”