Delayed cabinet: Stock market investors lose N238bn

The delay by President Muhammadu Buhari in appointing ministers and other key officials as well as the lack of clear information about his government’s policy direction have been major deterrents to investment in the nation’s capital market.

Capital market analysts, who spoke to our correspondent on the recent performance of the market stressed that investors, especially foreigners, were unlikely to make significant investment in the market, if any at all until, they had a clear picture of the policy direction of the government.

As of Thursday, three weeks after the inauguration of the President on May 29, the value of equities listed on the Nigerian Stock Exchange had declined by N238bn or 2.04 per cent, while the NSE All-Share Index fell by 2.47 per cent or 849.87 basis points.

In 14 trading sessions post-inauguration, the stock market closed on a positive note on only five occasions and with marginal gains.

This, according to analysts, is due to the delay in the formation of the cabinet and lack of vital information about what the economy direction is going to look like, leaving investors uncertain about the what policies the government will implement.

The situation is different from what happened immediately after the presidential election.

In the first trading session after the declaration of Buhari as the winner of the election, the value of stocks listed on the NSE rose by a historical 8.4 per cent or N904bn.

Asked if the delay in forming the cabinet and announcing key appointments had affected the performance of the market, a financial analyst at WSTC Financial Services Limited, Mr. Olutola Oni, said it surely had.

He explained that the investment climate had been to a large extent dampened by the fact that the enthusiasm by which people looked forward to the coming of the new government was suppressed by what they had seen the government do since it was inaugurated.

Oni said, “When the elections were conducted peacefully and the transition was peaceful, people expected that the incoming government would consolidate on that, roll out the list of those that would form the new government and make one or two policy statements.

“But up till now, apart from the fact that the government moved the military command centre to Borno State, no other policy statement has been made, not even as regards the issue of the fuel crisis. Everything has been virtually the same; just like nothing happened on the political scene.”

According to him, it is normal for investors to want to see the team that the current administration plans to work with and get a feel of its ability to address the key issues of insecurity and corruption.

“The quality of people that are going to come on board will go a long way to determine what the outcome will be in the short to medium-term generally; it is going to determine whether the government is serious about tackling corruption or whether it is going to merely scratch it on the surface,” he said.

The Head, Research and Investment Advisory, Sterling Capital, Mr. Sewa Wusu, shared a similar view.

Wusu, who stressed that investors were currently on the sidelines, said they had expected the government to hit the ground running in terms of coming up with a clear-cut policy direction.

He explained that a clear policy direction was important because that would give investors confidence as they would know where the economy was heading.

He said, “You don’t make investment in a vacuum. You look at certain parameters; the political environment, the economic environment and some other factors.

“Most investors are on the sidelines now as far as investment is concerned; whether in equities or fixed income, because they are waiting for a policy direction from the government before they can make well-informed investment decisions.”

Wusu, who explained that the action of the investors was not because the economy was bad or that the valuation of the stocks was not attractive, said smart investors were, however, taking advantage of the low value of the stocks.

Foreign portfolio investors, who dominate the stock market, had pulled out up to N1tn in 2014, taking out a further N234.84bn between January and April 30 this year.

Analysts have said that for the stock market to recover, significant number of foreign portfolio investors have to return to the market. But that has not happened.

While domestic transactions in the stock market rose by 37 per cent in the first four months of this year, total equity transactions by foreign portfolio investors within the period declined by 11.25 per cent.

The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, told our correspondent recently that the policies of the government would determine the return of the foreign investors and an upturn in investment in the capital market.

Chukwu said, “The economic policies of the new government will make the capital market attractive or unattractive for investors, both local and international investors.

“If the government comes up with policies that make Nigerian instruments very attractive and then stabilises the exchange rate or the exchange rate is at a level where foreign investors believe it will not depreciate materially further, then you will see the return of foreign investors, which may up their share in the market.”

[Punch]