Nigeria’s stock market spiral fall

The spectacle of how the Nigerian stock market fell from grace to grass in less than six months should attract the attention of serious minded economic observers in the country. Nigerian stocks were regarded as one of the best performers in the world at the beginning of the year. By returns, it was considered the best performing stock. This feat elicited commendation for the managers and administrators of the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC) at the time, and attracted more investors into the country. The equity index increased by 12 per cent largely driven by foreign inflows totalling N337 billion ($940 million) in 2017. The cheap valuation of the stocks was the major attraction for foreign investors. In a sharp contrast, today the same stocks are on a free fall. Nigerian stocks have officially entered the dreaded bearish zone. All market indicators have continued to fall on a weekly basis. By the first week in June 2018, the All Share Index (ASI) had slipped by 3.38 per cent leading to YtD return of -5.4 per cent. This invariably means all the gains recorded earlier in the year have been wiped off. For many weeks now, selling position has been hovering around 90 per cent while buying position has been less than 10 per cent; a clear signal that investors are intensely becoming weary of the market. Everybody wants to sell; only few are willing to buy.

It is not unusual for stock markets to fluctuate since it is essentially driven by the law of demand and supply. However, the negative performance of Nigerian stocks cannot be separated from the uncertainty that characterises elections in Nigeria, especially when the economic atmosphere of the nation is largely and often dependent on the direction and capacity of who becomes the president. For investors, a precautionary measure is to hold back funds till such a time some certainty returns to the market. Aside this usual and normal reaction, the market has been further depreciated due to the current political sphere that is getting more heated by the day. To the resident Nigerians, these are not entirely unfamiliar times; this is a cycle that is repeated every four years. But for the foreign investor whose decision is partly informed by the prevailing political atmosphere, these are defining moments that require some retreats. One would expect that understanding this constant recurring reaction from foreign investors should signpost a deliberate strategy from the nation’s economic planners to manage the process; especially now that the stock market is knowingly dominated by foreign investors. However, a preponderance of inaction and series of questionable events seem to have further heightened the unfavourable sentiments. A major shortcoming is the drop in momentum as soon as the country exited recession. Rather than focus vigorously on such policies as the Economic Recovery and Growth Plan (ERGP) to provide a strong economic direction and sustain the tempo that overpowered recession, the nation navigated nearly half of the year without a budget. The Monetary Policy Committee (MPC) could not meet for months thereby resulting in unstable monetary policy.

These issues may appear localised, isolated and incapable of disrupting the economy; but they play a significant role in investment decisions. Investors want to be assured of their investments. And every smart investor will think twice before committing funds to a capital market regulated by uncertainties. This reality is not peculiar to foreign investors; even local investors are weary of the market.

The market may not be a total reflection of the economy but it is representative of investors’ confidence in the economy and its potential outlook. People invest in stock market in anticipation of future returns. But when the same people take out funds from the market in droves, it simply suggests a vote of no confidence in the viability of the market in the immediate future.

Whilst it is important to reinvigorate economic strategies, the polity must be supportive. Restoring confidence in the market demands a political atmosphere that is more assuring than scary. It may be difficult to provide strong policies that will insulate the market from political realities because investors are essentially concerned about the political future of the country and the safety of their investments. It is imperative for political actors to desist from inciting statements that present an outlook of war, insecurity and anarchy. Candidates should engage and be engaged on their plans to improve the economy and not on the basis of other frivolous and mundane sentiments. A positive and attractive economic environment can only be created by dousing the tension in the polity.