ANALYSIS 3
Inconsistent policies, foreign exchange risks, fleeing investors, and poor corporate results, among others, have kept the stock market under pressure leading to a loss of N1.611 trillion in the two years of Muhammadu Buhari’s administration, writes Goddy Egene
When President Muhammadu was declared winner of the 2015 presidential election, the stock market responded positively as investors had expected some changes that would  impact on their fortunes. Although the stock market had declined in 2014, the news of Buhari’s victory raised fresh optimism among investors and stakeholders driving the market to new high.
 Initial Optimism
The stock market recorded a historic performance, gaining N904 billion in one day as investors reacted positively to victory of Buhari in 2015. While the market capitalisation of the Nigerian Stock Exchange (NSE) gained N904 billion, the  NSE All-Share Index (ASI) soared by 8.4 per cent, the first of such gain in the history of the market, to close at 34,380.14.
A total of 65 stocks appreciated compared to only three that declined. Reacting to that impressive performance, a stockbroker, Mr. Mike Ezeh of Crane Securities Limited had said  it was expected because many institutional investors, who had been holding back, were returning  to the market to buy into highly discounted stocks.
“What we are seeing now will be the trend for the next few days as investors react to the successful elections and corporate results being declared. Many of the stocks have declined to record lows and now investors are taking advantage of those low prices,†Ezeh had said.
 Bears Set in
While the enthusiasm that greeted the coming in of Buhari was expected to further boost the market, the bears set in as investors’ confidence began to wane due to delay in appointment of cabinet members to drive the government’s economic policies. For instance, 100 days after a historic performance, the stock market lost N1.511trillion.
  Although some market operators said the lack of economic direction of the Buhari’s government due to absence of ministers dampened investors’ earlier enthusiasm,  the decline in oil prices and devaluation of the Naira equally  discouraged foreign investors from increasing their patronage of the market.
Analysts said the market was affected by the adverse economic climate characterised by declining oil prices, rising inflation, declining capacity utilisation and job losses in the manufacturing sector, uncertainties around devaluation of the naira and the delay in passing the 2016 budget.
“Given the pedigree of President Buhari, his victory at polls was enthusiastically received. Expectations were high. But the delayed appointment of key government officials including ministers had dampened confidence of many investors. That is why the market has been sluggish .As you know, investing in stocks is investing in the future of those companies. But now, it is difficult to tell the policy direction. That is why investors are reluctant to invest for now. I believe by the time the government appoints ministers and make its policy direction known, the market will pick up again,” a stockbroker had said.
Also, the poor performance was linked to the overwhelming influence of the difficult macroeconomic environment which diminished investors’ sentiments.
 “When he won the election, there was the Buhari bounce which was unprecedented because of the confidence that followed a successful election that was relatively fair and free. The slow state of the administration has put a lot of investors on hold. The relative uncertainty of the business environment has severely impacted the market. The current negative perception of the market will change in the first quarter of 2016 when economic policies become clearer on the way forward. Investors must however take advantage of the great opportunities in the market now because the price of oil will soon stabilise and the prices will move quickly,†another broker said.
Similarly, another broker, Mr. David Adonri, said: “The dismal performance of the market was due to lack of fiscal policy direction by his government, continued decline in crude oil price and impact of  Chinese stock market crisis. However, there are positive developments in the economy. Under the president, fuel scarcity has been arrested and electric power supply has improved remarkably.â€
Although the equities market has suffered decline for the past two years, it was expected that the entry of a new administration would reverse the negative trend.
For instance, the Chief Executive Officer of the NSE, Mr. Oscar Onyema had said that with greater clarity on policy direction, they anticipated the return of investors who had remained on the sidelines throughout 2015.
“This return is predicated upon return of investor confidence as a result of: effective implementation and communication of the government’s economic blueprint; credibility in monetary policy stance; relative stability in the macro economy (oil price stability above benchmark targets, increase in tax collection to gross domestic product among others) and improved   security,†he said.
However, these expectations have not been met, a development that has weakened investor demand for stocks.   Some financial experts had said that the developments in the global oil market and foreign exchange policy would determine capital market’s performance in 2016.
According to them, the decline in the nation’s bourse would continue if the price of crude oil continued to fall and government fails to move faster in policy implementation.
By the end of the first year of Buhari’s administration, the market had lost N1.733 trillion in market capitalisation, falling from N11.659 trillion to close at N9.926 trillion. Similarly, the ASI fell 15.7 per cent to close at 28,902.25, down from 34,310.37.
 Fresh hopes
Realising that the foreign policy exchange risks were affecting the patronage of the stock market, the government at the beginning of its second year, which was June last year adopted a flexible forex policy.
Prior to the adoption of the flexible forex policy, the level of foreign investors had dropped significantly. Since 2011, foreign transactions have consistently outperformed domestic   transactions.   However,   domestic transactions   slightly outperformed foreign transactions in 2016, accounting for 55 per cent  of the total transaction volume in 2016, a development that reflected the impact of the forex risks.
However, the introduction of the flexible policy raised fresh hopes for the market recovery.
Commenting on the development, analysts at Afrinvest had said: “We expect this move to help improve FX supply constraints as foreign investor sentiments improve towards Nigeria as an investment case. We believe foreign portfolio investors (FPIs) and foreign direct investors (FDIs) which have been staying on the side-line would find their way into the system on the back of foreign investor confidence receiving a boost as the interbank market is reinstated as the official platform for market determined exchange rate.â€
According to the  analysts,  they also believe sentiments for equities market, which had anticipated a currency adjustment move, had been elevated as investors await the “come back†of foreign investors who had earlier exited the market on the back of rigid foreign exchange regime.
Also speaking,  an analyst at WSTC Financial Services Limited, Mr. Tola Oni, said in the last one year, the efficiency of the country’s economy had been constrained by policies – monetary and fiscal.
He, however, said saying some actions by the federal government in recent times had shown a rethink especially in the partial deregulation of the petroleum downstream sub-sector and the flexible foreign exchange market.
“Our concern is that this flexibility must mean flexibility in the whole sense of it. We’ve seen the capital market make progress recently owing to these. Any attempt by the government to interfere again could drag us back significantly,†Oni said.
Renewed confidence
Poor financial performances of companies due to the negative impact of forex challenges have been part of factors responsible for the decline in the market. The banking sector as well as manufacturing all suffered the negative impact of the forex scarcity, which impacted negatively on their 2016 financial results.
 However, the recent introduction of new  FX widow by the CBN has renewed confidence in the market as indicated in the market trend for three weeks post introduction of the policy.
Index spiked by 11.92 per cent in  three weeks, from 25,189.27 to close at 28,192.46, while market capitalisation gained N1.03 trillion or 11.81 per cent, from N8.716 trillion to N9.741 trillion.
The volume and value of trading also witnessed unprecedented gains, as investors traded 5.742 billion shares valued at N48.848 billion in 158,346 deals in three weeks.
Commenting, analysts at Cordros Capital Limited said they sensed improved investor appetite for risk assets on the Nigerian bourse, judging by market activity in the past three weeks, and more specifically the spike in the number of deals and the volume of shares traded last week.
They linked the performance to reduced apprehension in the macroeconomic environment, impressive full year 2016 and 2017 first quarter (Q1) results of highly capitalised companies, as well as increased confidence and liquidity in the forex market.
Supporting this assessment, analysts at Afrinvest  said foreign investors’ appetite for Nigerian assets had waned significantly on the back of the currency crisis, which in turn had fundamentally weakened macroeconomic environment, dragged corporate earnings, and impacted negatively on the equities market.
“However, in April, investor sentiment strengthened following the commencement of the Investors’ & Exporters’ (I&E) FX window which signalled a possible return of flexibility in forex rate determination, though multiplicity of rates at the official window is still a major concern.
Despite the relief brought by the FX window, a total of  the  capitalisation of the stock market has dipped by N1.611 trillion or 13.8 per cent, falling from N11.659 trillion on the eve of the inauguration of the administration in 2015  to N10.048 trillion last Friday. Similarly, the Nigerian Stock Exchange All-Share Index (ASI) fell from 34,310.37 to 29,064.52, indicating a decline of 15.2 per cent.
An analysis of the performance showed that in the first year of Buhari administration, the market capitalisation shed N1.733 trillion to close at N9.926 trillion. Similarly, the ASI fell 15,7per cent to close at 28,902.25. However, the market recovered marginally in the second year with capitalisation gaining N122 billion while index appreciated by 0.56 per cent.
