The Nigerian Exchange Limited has said that domestic investors have shunned election risks by continuing to invest in the market ahead of the 2023 general elections.
This is coming at a time when foreign portfolio investors have exited the country’s capital in droves due to election jitters and other issues such as forex crisis and CBN’s monetary policies.
The shunning of election risks by the domestic investors explains why the Nigerian bourse has continued to perform well ahead of the elections. Data from the Nigerian Exchange has shown that the All-Share Index (ASI) has continued to maintain a bullish run since September last year, up 5.80% so far in 2023.
- “The positive domestic investor sentiment, according to analysts, has been driven mostly by strong earnings releases and dividend payouts announced by companies in the wake of earnings season. However, some have advised cautious trading as the 2023 elections approach but maintained their positive outlook on dividend yields and capital appreciation in bellwether stocks,” the local bourse noted.
Why this is different: The Exchange noted that historically, the market has typically experienced volatility during election seasons, especially during the 1999 election which saw a change from military rule to civilian rule, and also during the 2015 election which saw the first time an incumbent president was defeated at the polls. During each of these elections, the market declined pre-election.
What you should know: Meanwhile, foreign participation in the local bourse has so far moderated in recent years due to issues around forex liquidity and monetary policy, placing their turnover at 16% according to the December 2022 edition of the Domestic and Foreign Portfolio Investment Report of the Exchange.
Analysts have commented that this is in due part a result of unimpressive yield in fixed-income securities, pushing investors to buy up fundamentally strong stocks with attractive dividend yields.
Fixed income yields: An analyst with Parthian Securities, Azeezat Awonuga, whilst commenting on the market with CNBC Africa said that investors are poised to hunt for gains in the stock market as the fixed income yields have moderated in recent times.
- “As we anticipate earnings from the banking sector which comprises about 60% of the volume in the market and also form the bulk of the fundamentals, positive earnings will push investors to plough more funds into the market,” she stated.
Cash crunch: Another investment research analyst from Investment One Capital Management Limited, Akosile Oluwasanmi noted to Channels TV that uncertainties around the elections and the cash crunch in the economy could dampen investor sentiment into taking profits but positive corporate earnings could also see investors increasing their positions.
