The Nigerian All Share Index (NSI) dropped below 50,000 index points to close trading at 49,836.51 points on August 31, 2022, on fears relating to the forthcoming elections in 2023.
This is the first time the All-Share Index, which is the broad index that measures the performance of Nigerian stocks, has dropped past the 50,000 mark since April this year.
The ASI rose to as high as 54.085.30 in May 27, 2022, but has since in the past three months dropped by 4,248.79 basis points or 7.85%.
Statistics obtained by the Nairametrics showed that activities on the Nigerian Exchange which opened the month at N27.162 trillion in market capitalisation and 50,370.25, in index points at the beginning of trading on August 1, 2022 closed on August 31, 2022, at N26.880 trillion and 49,836.51 index points, thus losing N282 billion or 1.05% month to date.
Further analysis showed that that the NGX Industrial Index was the hardest hit in terms of decline in August, dropping by 13.8 per cent to 1,777.14 points from 2,062.30 points it opened for trading during the Month.
Oil & Gas Index followed with a decline of 4.3 per cent to 532.15 points from 556.28 points it opened for trading in August.
Pre-election years are usually characterized by negative sentiments which also result in the exit of foreign investors.
The build-up to the 2023 general election has started impacting the market negatively. Freighted foreign and domestic investors are exiting the market which is sparking up liquidity crisis.
Market experts believe that domestic Investors’ sentiment is usually weak as they seek to reduce their market exposure when elections draw closer. The intensity of the impact is usually a function of the degree of political tension and uncertainty generated by political activities.
What market experts are saying
Analysts at CardinalStone Partners Limited noted that the build-up to the 2023 election will keep foreign investors at bay and throw up more financial account-related concerns.
The analysts, while commenting on the state of the nation in their 2022 mid-year outlook themed: ‘Same Challenges, New Shocks’ argued that pre-election year concerns and fears of negative pass-through to inflation will likely limit the magnitude of currency adjustment made at the official market in the current year.
According to them, akin to the trend witnessed in emerging and frontier markets, Nigeria was also mostly unappealing to foreign capital providers in H1’22.
They attributed the sentiment to geopolitical uncertainties and hawkish rendition from global central banks.
In addition to these global factors, they pointed out that lack of market reflective FX rates, illiquidity and a backlog of uncleared foreign exchange demand dampened investors’ sentiments.
Mr. David Adonri, Executive Vice Chairman, Hicap Securities Limited said “Right from the penultimate year to the election, the socio-political atmosphere becomes charged. Politicians resort to violent rhetoric and divisive tactics which deepen the country’s socio-political fault lines, in order to establish a competitive edge. During this period, the economy becomes overloaded with money arising from excessive election spending which spikes inflation.”
Historical antecedents indicate that on average, both equities and bonds show positive or negative performance in the penultimate year and immediately after election. While the drama of general elections can make your imagination run wild, what you need to watch out for is how the unfolding scenario will affect the economy, the capital market and your portfolio.
It may be helpful to stick to a long-term strategy, which is longer than any election cycle, as returns in the capital market are made over a full business cycle, which may be longer than even one presidential term. For investors with low-risk tolerance, the safety of bonds can douse their apprehensions”.
A former Commissioner for Finance in Imo State and Professor of Capital Market at the Nasarawa State University Keffi, Uche Uwaleke predicted that there will be Portfolio rebalancing away from equities to fixed income securities, even as this period has been associated with the exit of foreign investors.
His words: “Domestic Investors’ sentiment is usually weak as they seek to reduce their market exposure when elections draw closer. The intensity of the impact is usually a function of the degree of political tension and uncertainty generated by political activities
“While the ASI depreciated in September for all penultimate election years, it appreciated in January for all election years except 2015. The outlier, January 2015, was the election year that ushered in the present administration characterized by high tension and uncertainty, compounded by the fall in international crude oil price and the rumoured break-up prediction of Nigeria in 2015 by the United States National Intelligence Council.”
According to him, the bearish run experienced in the stock market in H2 of 2014 (largely on account of the tension) had lingered into January 2015.
“To identify mis-priced stocks, the application of ‘Tobin-Q’ or ‘Kaldor’s V’ and Price/Earnings ratios is advised. Ultimately, the best strategy to shield the headwinds is to stay with securities that have solid fundamentals as well as ensure a well-diversified portfolio of investments, particularly during electioneering periods,” he advised.
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