The current losses witnessed in Nigeria’s stock market have left most investors wondering whether the right choices were made when they chose to put up hard earned funds into buying stocks of companies listed on the Nigerian Stock Exchange (NSE).
Overall performance of the market shows it is currently yielding little or no returns, with year-to- date losses heading for double-digits.
However, the market has been known to react to fundamental economic policies, basic information as well as stability in governance.
Also Read: Nigeria’s Stock Market to Rebound in Q3’19
Uche Joe Uwaleke, a Professor of Finance & Capital Market, and head, Banking and Finance Department, Nasarawa State University, Keffi, is of the opinion that one of these policies which is the planned introduction of derivative instruments in the market by the Securities and Exchange Commission (SEC), of which preparations have reached advanced stage at both SEC and the Nigerian Stock Exchange (NSE), would help investors both foreign and indigenous investors to hedge their investments.
Uwaleke in his lecture on the ‘Stock Market in the first quarter 2019 and post-election prospects,” at the quarterly forum of the Capital Market Correspondent’s Association of Nigeria (CAMCAN), said “The NSE is really waiting for SEC to finalise the rule for the derivatives to be introduced, as it will give investors room to hedge risks.”
According to him, another plus for the market is the CBN’s MPC supportive move in March 2019, by bringing down MPR by 50 basis points, after 33 successive months, to 13.50% from 14%, of which the professor stated that he sees prospects of further reduction in the MPR soon.
“Lower MPR will free funds for investments or lending to firms for expansion which will improve their earnings and deliver more value to investors. It has a way of attracting investors, opening the market and hedging risks”, he said.
Further acknowledging positives for the market this year, Uwaleke explained that the expected listing on the NSE, by MTN, should boost market liquidity, diversify offerings as the company will become the second most capitalised company in the market, after Dangote Cement Plc.
He added that the Nigerian Pension Commission (PENCOM)’s six multifold structure rule expected to boost PENCOM’s investment in the equity market, as well as the margin lending rule, currently being worked on by the SEC and efforts at deepening domestic investors participation in the market were some of the measures expected to driver early market reversal in Netherlands third quarter.
Speaking on how minimum wage increase will impact positively on the market, he said “’ this is the time to take position, the minimum wage will be positive for the capital market, inflation is caused by weak aggregate demand, but new minimum wage will rather boost aggregate demand, driven by greater number of people having more disposable income and also money to save.”
He said that it is unlikely for another economic recession in Nigeria, because the factors that contributed to the recession in 2016, are currently none existent.
“Crude oil price is not bad today, external reserve is healthy, inflation rate at 11 per cent is healthy” he said.
Speaking on some external factors likely to drive market reversal in Q3 2019, Uwaleke listed, crude oil price, declining trend of yield in the US which will likely bring about capital flow to emerging markets, Easing US—China trade tension, and easing Brexit tension, amongst other factors which will impact Nigeria’s market positively.
He noted that the market closed the Q1 2019 bearish, caused by what he termed as systemic risk and non-systemic risk.
“The non-systemic risks are risks associated with the operations of the companies, a risk that is particular to a company and doesn’t affect other companies. Non-systemic risk contrasts with systemic risk, which is risk that applies to all companies in a market or industry and doesn’t affect other companies, while systemic risk, affects all companies in a market or industry,” he said.