Index records 7.8% loss in Q3 over uncertainties

For the third quarter ended September 30, 2019, performance of many listed firms at the Nigerian Stock Exchange (NSE), continued the depreciated due to uncertainties and absence of clear economic policy direction.

The development has significantly weakened consumers’ disposable income with multiplier effects on listed firms’ earnings and overall performance.

Specifically, the All-Share Index (ASI), which tracks the general market movement of all listed equities on the Exchange declined by 2,336.31 points or 7.80 per cent to close at 27,630.56 points as at September 30, from an opening of 29,966.87 points on July 1.

Also, sector performance was bearish as all indices closed the period lower. NSE Lotus 11 index depreciated the most by 10.08 per cent in Q3, NSE Consumer Goods index followed with 9.96 per cent, while NSE 30 index shed 9.52 per cent.

Others are NSE Insurance, Banking, Pension, Oil and Gas, Premium Board, Industrial Goods and ASeM fell 7.97 per cent, 7.68 per cent, 6.47 per cent, 5.81 per cent, 3.93 per cent, 1.32 per cent and 1.02 per cent respectively.

Analysts linked the downturn to increased price volatility and apathy, especially on the part of foreign portfolio investors, who adopted cautious trading stance during the period as selloffs persisted amid growing insecurity and political tension.

Even with the constitution of ministerial appointment and assignment of portfolio, the analysts still believed that investors, especially foreigners, were unlikely to make significant investment in the market until they had a clear picture of the policy direction of government.

According to them, there is presently lack of vital information about what the direction of the economy, which had plunged the economy into a prolonged uncertainty and eroded investors’ confidence in the market.

Furthermore, they predicted gloomy outlook for the next quarter (Q4), noting that the market would record a reasonable level of recovery if the new economic advisory team provides a workable roadmap to drive growth.

Specifically, the Head of Research and Investments, FSL Securities Limited, Victor Chiazor, said the stock market has continued to suffer from weak company earnings as well as sluggish economic recovery, which has seen consumer disposable income remain significantly weak.

This, according to him, resulted to increased patronage of the fixed income market given the high yield environment, adding that the development has taken out liquidity from the equities market in no small measure.

“Investors have also continued to favour the fixed income market given the high yield environment and this has taken out liquidity from the equities market. Going forward, we believe that until the general economic conditions improve, the market may not experience a sustained bull run but instead we would continue to see pockets of gains.

He added: “The gains will be largely driven by improved individual company performance, and positive market information. Investors sentiments in the last quarter are also expected to remain weak, though we expect to see some bargain hunting into the latter part of the year as investors begin to position ahead of the full year earnings and dividend declaration.”

The Managing Director, Highcap Securities Limited, David Adonri, said waning investors’ confidence and apathy have contributed to the depressed mood in the market.

According to him, governance has taken the back seat, with government and politicians concentrating their efforts on politics, which has a taken a toll on the Exchange, causing tremendous apathy in the stock market.

He said the bearish mood will continue in the next quarter unless there is a positive catalyst that would trigger a major resurgence in the market

The Managing Director, Cowry Asset Management Limited,  Johnson Chukwu, argued that government policies will determine the return of local and foreign investors and an upturn in investment in the capital market.

He said, “If 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 shares in the market.”