The Nigerian stock market took a plunge yesterday as some disappointed investors reduced their appetite for equities while others sold to lock in profits due to apprehension over the delayed elections.
The Nigerian Stock Exchange (NSE) All-Share Index, which gained 3.7 per cent last week, fell by 1.61 per cent yesterday to close at 32,190.07, down from a year’s high of 32,715.20. Also, market capitalisation shed N196 billion to close lower at N12.004 trillion, down from N12.2trillion.
Similarly, the naira weakened on the forward market yesterday as the one-year non-deliverable naira forward opened at a quote of $401, compared with $397 in the previous session.
Investors had started to pick up shares to position for a post-election rally, assuming that the election would pass without violence or other problems. The development lifted the market to new high last week, gaining over N700 billion. However, the postponement of the election came as a shock and is making investors to review their investment strategy.
According to a senior economist at Exotix Capital, Mr. Christopher Dielmann, “There is some frustration on behalf of investors, who have had concerns about this election for the better part of the past year and are ultimately hoping to simply put it behind them.”
Reuters said the delay hit Nigeria’s dollar-denominated bond yields and could affect demand at a government naira debt auction this week.
“Some investors might still want to wait for the results of the election to gauge risks, such as a possible contestation of the result, which the postponing arguably now has given more grounds for,” senior Economist at South Africa’s NKC African Economics, Cobus de Hart, said.
Analysts also said the postponement could disrupt Nigeria’s economic and market rebound.
“The economic consequences of this decision will be felt significantly, as what was supposed to be a smooth process is now mired in lengthened uncertainty and controversy, thereby shaking investor confidence and somewhat eroding the renewed interest from both foreign and domestic investors,” analysts at Vetiva Capital wrote in a note.
“We expect the postponement to directly lead to a reversal in the market with jittery investors quickly withdrawing from the market while others wait on the sidelines.”
The Chairman of Association of Stockbroking Houses of Nigeria (ASHON), Partick Ezeagu, told THISDAY that the postponement would lead to more uncertainty in the stock market in particular and economy in general.
According to him, uncertainty is the greatest phobia that afflicts any market.
“The fact that it happened less than six hours before the election was to commence, investors would react negatively unless a very credible reason is adduced and effectively disseminated urgently,” Ezeagu said.
Group Chief Executive Officer of Emerging Africa Capital Group, Mrs. Toyin Sanni, said the postponement has lengthened the waiting time for investors who had already adopted wait and see approach to
“In investments, the longer the waiting time for any outcome, the higher the perception of risk. Also, the postponement indicates that we may not as a country have all our act all together thus increasing concerns about the possibility of the election process being smooth and hitch free,” she said.
Sanni added that the development could also raise, in some quarters, fears that the process itself may be manipulated.
“Anything that reduces the perception of transparency affects our attractiveness and credibility and investment destination,” she said.
Another stockbroker, Mr. David Adonri of Highcap Securities Limited, said the postponement of the election at the dying minute was an insult to the electorate.
“Every sector of the economy including the capital market will be disastrously affected. It will further erode investors confidence, which is already at a low ebb,” Adonri said.
Similarly, Mr. Sola Oni of Sofunix Investment, said the postponement was a sad commentary that will deepen Nigeria’s political risk with dire consequences on investment decision.
“The shock caused by the announcement may jolt foreign portfolio investors who have been apprehensive of the presidential election. It is not unlikely that trading on the stock market may be moderated by this development as it is capable of further eroding investor confidence in our market. Every political decision has direct or indirect impact on the financial market. I think the time has come for our leaders to stop making Nigeria a laughing stock before the international community,” he said.
However, Garba Kurfi of APT Securities and Funds Limited said the postponement might not have much negative impact on the market given the growth the market has recorded in the last two weeks.