Investors bemoan N2 trillion losses in equities in three years
…Blame weak economic recovery, insecurity, capital flight
…Urge govt. to prioritise critical sectors, incentivize listed firms
Worried by over N2 trillion losses recorded by stock market investors in the last three years, experts have urged the government to tackle insecurity issues and other macroeconomic concerns impeding efforts to attract the needed investment into Nigeria.
The experts, who noted that the Nigerian economy has not witnessed a sustained economic boom, argued that the outputs and incomes increases required to propel investments in shares have been unavailable in the last five years,
Specifically, the market capitalisation, which stood at N15.691 trillion on January 26, 2017, was down to N12.769 trillion on June 30, 2020, representing N2.922 trillion or 22.8 per cent fall.
Also, the All-Share Index, which opened at 43,773.76 during the same period, lost 19,294.54 points, plummeting to 24,479.22.
Analysts linked the current market instability to security challenges bedevilling the nation, which they claimed had aggravated apathy in investment, especially on the part of foreign investors.
According to them, the prolonged recession in Nigeria’s economy has continued to create doubt about the macroeconomic and monetary outlook as well as affect investment decisions at the capital market.
These constraints are exacerbated by the COVID-19 crisis, currently the global economy and on the verge of pushing the Nigerian economy back into recession.
The Federal Government had in March, imposed a lockdown in Lagos and Ogun states as well as Abuja (which have the highest number of coronavirus cases combined).
Other states quickly followed by imposing lockdowns in their states. Nigeria has a burgeoning economy as well as a large informal sector, which contributes about 65 percent of its economic output.
Therefore, movement restrictions have not only reduced the consumption of nonessential commodities in general but have affected the income-generating capacity of this group, thus reducing their consumption expenditure.
The outbreak of COVID-19 and rising incidence in Nigeria, also calls for drastic review and changes in the earlier revenue expectations and fiscal projections.
Furthermore, investments by firms were impeded largely due to the uncertainties that come with the pandemic-
Accordingly; the experts urged the government to prioritise critical sectors like manufacturing, agriculture, healthcare, SMEs and security, by putting the right infrastructure in place to make these sectors more productive.
They also called for more incentives to attract retail investors as well as form local capacity that can absorb the effects of the exit of foreign portfolio investors.
A Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Prof. Sheriffdeen Tella, argued that the continuous downturn in the nation’s economy has affected investment decisions in the capital market.
He said: “Continuous recession in the economy actually affected investment decisions at the capital market. There is the need for capital market managers to provide incentives for more companies to join and participate in the capital market to raise funds, as well as public enlightenment on the benefits of investments in the capital market. In economic intervention, the government can give priority to companies that are listed on the Nigerian Stock Exchange.”
The Chief Research Officer at Investdata Consulting, Ambrose Omordion, said the current downturn in the market started in 2018 when developed economies hiked their interest rates, which triggered massive outflow from Nigeria’s stock market
This was exacerbated by pre-election year uncertainties that lingered into 2019, as economic recovery was slow and fragile followed by panic massive selloffs as a result of the coronavirus pandemic as well as the crash in crude oil prices, and lockdowns to curtail the spread of the virus.”
However, he argued that the losses for three consecutive years present a buying opportunity for discerning investors because the current undervalued state of the market makes it more attractive.
“Despite the weak economy, the undervalued nature of the market signals a long bulls’ run when the economy starts recovering in the second half of the year to usher in growth in 2021.
“This is even as the government and central banks of the world continue to inject funds into the economy to mitigate the effects of the coronavirus outbreak. Nigerian stock market is one of the frontier markets with undervalued assets will be attractive to institutional and foreign investors, especially with the unification of the exchange rate.
He added: “Investors just need to set a realistic investment objective and good exit strategies at any given time. The market is presenting huge opportunities for wealth transfer and creation.”
The President, Association of Stockbroking Houses of Nigeria (ASHON), Patrick Ezeagu, noted that the Nigerian capital market can become more attractive to local investors by ensuring that there are proper incentives such as good and operational corporate governance practices, favourable policy, and social-economic environment, appropriate and fair tax system as well as stable monetary and fiscal policies.