The postponement of the general elections has heightened anxiety and dampened investors’interest in Nigerian equities, analysts have said.
The presidential and national assembly elections initially scheduled for Saturday, February 14 were shifted to March 28; the governorship and Houses of Assembly elections scheduled for February 28 were shifted to April 11. In the first trading session after the shift, Nigerian equities on Monday lost N208 billion.
Analysts said the postponed elections could trigger negative reactions from investors, adding that the consequent disruptions could worsen the negative streak in the stock market.
The market opened with average year-to-date return of -13.48 per cent. Before the poll shift, the market had sustained appreciable rally to close the week with average week-on-week gain of 1.43 per cent.
Analysts at Afrinvest Securities Limited, said the shift could lead to a decline in investors’ preference for Nigerian equities.
Accordingly, the market may likely react negatively to the shift in the general elections by six weeks.
Analysts noted that although the shift may lead to relaxation in the charged political atmosphere, “the poll-shift has further increased socio-political uncertainty, adding to the risk profile of the Nigerian stock market”.
Analysts said they however, did not expect a knee-jerk negative response given the current market situation at the stock market where most equities are significantly trading below their intrinsic values.
The Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, also cited political tension as one of the reasons that would keep the market largely down in the weeks ahead.
In his latest outlook on the equities market, Rewane said the downturn in the equities market will continue as negative sentiment would continue to dominate.
According to him, three factors will continue to influence pricing trend at the Nigerian stock market, including corporate earnings, the general elections and the interplay of bargain hunters and profit-takers.
He noted that weak corporate earnings for the year ended December 31, 2014 and political tensions, would serve as dampeners for the market, while the significant undervaluation of the market would continue to attract discerning investors.
Rewane said there would be increased volatility at the stock market as the tussle between bargain hunters and profit takers is also expected to be intensified.
Like several other analysts, Rewane outlined that the first and second quarter of this year might be dominated by the negative sentiments, while the equities are expected to stage strong recovery on the back of increased demand and positioning in the third quarter, which could extend into a stable phase in the fourth quarter.
Exotix, a global finance and investment firm with offices in major global financial centres and significant imprints in Africa, said the delay to the election is a short-term negative for investors because it delays the currency devaluation and the resumption of structural reform that should have followed the election. Exotix coordinates its global operations through five major offices in London, New York, Lagos, Dubai and Nairobi.
“The oil price collapse makes further devaluation inevitable, but political considerations have likely put off the full impact of this until after the election.
“This necessary “clearing of the decks” for dollar-based international investors has therefore been delayed, too. In addition to this, we believe that post-election politics, regardless of the winner, are likely to see structural reform come back on to the agenda-there is simply less oil cash flow patronage to compete for after the oil price collapse; again, this is now delayed along with the election,” Exotix stated.
Exotix sees substantial value in the Nigerian market to attract investors, describing the nation’s current outlook as “an opportunity in despair”.
“Oil price collapse, election uncertainty, devaluation, restrictive bank regulation, Niger Delta oil theft and force majeure, consumer spending slowdown and Boko Haram are all serious concerns, but they are also all in plain sight.
“A post-election, post-devaluation scenario of a resumption of structural reform and less restrictive bank regulation, while Pollyanna-ish for some, is worth considering, in our view, with Nigeria’s trailing price-to-book near a five-year low,” Exotix stated.
Calm the nerves of investors.
Investors in Nigerian equities lost about N3.4 trillion in January, indicating average month-on-month loss of 14.70 per cent. Aggregate market value of all quoted equities on the Nigerian Stock Exchange (NSE) closed January 2015 at N9.847 trillion as against its opening value of N11.477 trillion for the month. This represented a loss of N3.38 trillion.
The benchmark index at the stock market, the All Share Index (ASI)-a value-based common index that tracks prices of all shares on the NSE, closed the month at 29,562.07 points, indicating a year-to-date return of -14.70 per cent. Total turnover in January had stood at 8.0 billion shares valued at N94.86 billion in 85,133 deals.
The performance in the first month raised the spectre of the previous year. Nigerian equities ranked among the worst-performing stocks globally in 2014 with average full-year decline of 16.14 per cent. Aggregate market value of all quoted equities closed 2014 at N11.477 trillion as against its opening value of N13.226 trillion for the year, indicating a loss of N1.75 trillion during the year.
Analysts at Vetiva Capital Management Limited however said investors in Nigerian equities may earn an average double-digit return of about 16 per cent this year, in spite of the bearishness that started the year.
Vetiva, in its outlook for 2015, stated that Nigerian equities have been significantly undervalued by the previous bearishness and would witness considerable recovery this year.
Analysts at Vetiva noted that while the performance of the equities market will correlate with the global oil price trend, a mid-point analysis suggests that Nigerian equities can make potential average return of 16 per cent this year.
Analysts pointed out that while valuations appear relatively cheap, sustained pressure on oil prices will likely continue to constrain investor re-entry into equities. Analysts thus anchored their 2015 return expectation for the All Share Index (ASI) of the NSE on oil price performance in the year.
According to analysts, using 16 year data, a correlation factor of 72 per cent between Brent crude prices and the ASI was established. The assumption of Brent crude recovering to $70/bbl by year end indicates a 22 per cent recovery from 2014 end position; thus, factoring in 72 per cent correlation suggests that amidst much volatility, the ASI holds a potential 16 per cent return in 2015 to 40,201.56 points.
“Our scenario analysis indicate that at $100/bbl level, ASI would hold a potential 54 per cent return for the year, whilst at $20/bbl price level, the return potential is -47 per cent. Given that the market selloff in the final quarter of 2014 was broad based, we believe a market recovery in 2015 will equally be broad based,” Vetiva stated.
