Persistent funds’ migration threatens stock market

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Nigerian Stock Exchange

Capitalisation drops below N12 trillion,losses hit 19.5 per cent
The continuous divestment from the equity market segment to other investment windows, especially the fixed income segment, has become a source of worry to capital market stakeholders. They have thus, urged the Federal Government to ensure that the 2019 poll is credible enough to cause a return of confidence in the stock market.

The stakeholders argued that if the authorities fail to ensure the credibility of the transition process, the poor state of the nation would erode the positive attributes of the macro economy, notwithstanding the level of improvements.They admitted that some stocks have remained fundamentally attractive, but regretted that the prolonged sell-off has induced apathy and low confidence.

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For instance, at the close of transactions last week Wednesday, the local bourse recorded its biggest loss in eight months, following massive sell-off that caused investors to lose N423 billion.The market capitalisation, which stood at N13.617 trillion as at January 2, 2018, when the market opened for transactions for the year, has now dropped to N11.69 trillion, representing N1.9 trillion loss, while the All-Share Index plunged by 6,242.56 points or 19.5 per cent from 38,264.79 points to 32,022.23 points.

The stakeholders’ linked the unprecedented loss to assessed heightened political risk, as the 2019 general elections draw closer, coupled with the gale of defections, devoid of clear economic plan or agenda to revitalise the economy.The Chief Research Officer at Investdata Consulting Limited, Ambrose Omordion, argued that the volatility in the market would persist, amid current political risks, especially as primaries kick off soon.“We expect the market to maintain this volatility as bargain hunters take advantage of the low-price regime, in the midst of continued sell-off and political risks,” he said.

The Founder of Independent Shareholders Association, Sir Sunny Nwosu, said it is now obvious that investors prefer to stake their fund in fixed income where the interest rate is fixed and stable.“Fund is leaving the market because of the current trend. A stock you bought the rights issue at N42 is N23 today, so some people will want to have a fixed interest rate. For instance, if the interest rate is 10 per cent, you work on that and expect the 10 per cent gain, which is fixed, than the capital market that you are not sure.

“Every thing about capital market is based on performance, so they may be leaving. What is the capitalisation today? A little above N11 trillion, from over N15 trillion. This money is investors’ money and not the regulators,” he said.Managing Director of HighCap Securities Limited, Imafidon Adonri, said virtually all assets are currently migrating to fixed income market, leaving the stock market on a perpetual decline.

“We are witnessing lots of asset migrating to fixed income. We are at a bias market now and the reason being the increasing political risk and dampened investors’ confidence in the country.“The political elections should be credible and transparent to instill confidence to participants. If it is not credible, the risk will increase and the country’s risk valuation will be on the high side.

“Authorities should bring back credibility to political transition process. This is the only way to put the risk at a decline. Notwithstanding how good the macro economic indicators might be, the soured state of the economy caused by political tension will erode the positive attributes,” he said.Since January 2018 when the NSE hit its five-year peak at 45,312.82 basis points, the bourse has lost 25.82% to rank the worst performing market in the globe. This officially puts the index in the bear market territory.