Shares take N325bn hit in week of Buhari victory

By Moses Obajemu

Investors’ sentiments in the nation’s equities market were mixed last week following the declaration of incumbent president Mohammadu Buhari as the winner of the presidential election held penultimate weekend. As a result, a total of N325 billion was lost in what was a direct fallout of the precautionary investment and loss hedging decisions taken by investors.

An opposition victory, according to market analysts, would have triggered a massive price rally on account of the expressed pro-business policy by its candidate, Atiku Abubakar. The knee jerk reaction of cautious investors in the wake of the president’s victory led to a massive sell off which brought down both the All Share Index (ASI) and market capitalization for three consecutive days.

The equities market had opened the month of February with a market value of N11.424 trillion, which rose to N12.200 trillion on February 15. However, the announcement of the election results on Wednesday caused the stock market to lose over N170 billion, which was followed by another N195 billion loss on Thursday, in an apparent negative reaction to the president’s victory. The All Share Index of the Nigerian Stock Exchange shed 1.63 percent to close at 31,718.70 basis points on Thursday, while the year-to-date gain declined to 0.97 percent.

Signs of the negative reaction to the ruling party’s victory became most noticeable on Thursday when banking stocks recorded their biggest fall since 2016.

The main indices of these huge losses were recorded in the stocks of the big banks, with the 10 largest banking stocks dropping by 4.6 percent at the close of trading on Thursday.

Those hard hit by the political developments were Guaranty Trust Bank Plc, which dropped 6.9 percent, Zenith Bank Plc, which fell four percent and Nigerian Breweries Plc, down 4.5 percent.

Reprieve, however, came for the embattled market on Friday as it made a modest gain of N40 billion, while the all share index appreciated by 108.54 points or 0.34 percent to close at 31,827.24 compared with 31,718.70 recorded on Thursday.

Similarly, the market capitalization, which opened at N11.828 trillion, rose by N40 billion or 0.34 per cent to close at N11.868 trillion on Friday.

A market analyst, Ambrose Omorodion, attributed the development to investors disappointment over the outcome of the elections. Omorodion explained that smart investors that took a position earlier in the market ahead of the presidential election and earnings seasons were disappointed.

He said that the outcome of the election failed to meet their expectations with many of them resorting to profit taking and movement of funds to the fixed income market with high interest and lower risk. According to him, investors are dumping their shares in spite of impressive earnings reports and high yields. He said that apart from the outcome of the elections, everything was against the stock market ranging from delayed budget, expiration of the tenure of the governor of the Central Bank of Nigeria (CBN) in June.

“The only factor for the stock market now is this earnings season, because nothing will happen between now and May 29,” Omordion said. He said that 2019 budget implementation would likely commence in July and the Central Bank of Nigeria governor tenure likely to expire in June contributed to the current trend. Omorodion said that the trend might likely continue unless there was a change in economic policies and reforms by the president re-elect.

A team of analyst at United Capital Research, a Lagos based research firm, noted that core macroeconomic fundamentals such as gross domestic product (GDP), inflation, among others, are expected to record positive milestones in the periods to come.

“For the financial market, although an opposition victory would have been greeted by a probable knee-jerk excitement, which would have buoyed sentiment in the interim, the re-election of President Buhari portends a stable outlook for the economy and the financial market over the next 3 years,” the analysts said in a report titled “The markets and capital flows in Buhari’s 2nd Term.”

According to the report, GDP growth is expected to maintain positive momentum over the short to medium term alongside further moderation in inflation rate and interest rates, while appetite for investment in Nigeria is anticipated to increase.

The analysts also expect the yield on government instruments to moderate sharply in the short to medium term while sentiment for equities would improve as investors revert to fundamental drivers of stock market performance rather than political uncertainties.