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How Elections Are Affecting The Capital Market

It is barely one week to the 2019 presidential elections and as rightly predicted by financial analysts, the economy has taken the back seat for heightened political activities across the country.

But that did not just happen, the better part of 2018 clearly indicated that the economy had taken a shock from the early kick-off of political activities, following the indication of interest by President Muhammadu Buhari earlier in the year.

The Nigerian Stock Exchange (NSE) had its crucial indicators depreciated by 19.77 per cent due to uncertainties surrounding the elections.

The exchange which was named the third best performing stock exchange in the world in 2017 with over 43 per cent return-on-investment performed dismally in 2018.

A breakdown of the foreign investment outflow from the exchange between January and September 2018 showed that a total of N513.49 billion left the country during the period. This amounted to 63 per cent increase in total outflow compared to N315.04 billion withdrawn in the same period in 2017.

According to the National Bureau of Statistics (NBS), the total value of capital importation into Nigeria reduced to 2.855 billion dollars in the third quarter.

The NBS in its “Nigeria Capital Importation (Q3 2018)’’ report states that the figure represents a 48.21 per cent decrease compared to the second quarter and 31.12 per cent decrease compared to the third quarter of 2017.

It said the largest amount of capital importation by type was received through portfolio investment, which accounted for 60.5 per cent (1.723 billion dollars) of the total capital import.

“This was followed by other investments which account for 21.07 per cent (601.53 million dollars) of the total capital importation in the period under review.

And then Foreign Direct Investment (FDI) accounts for 18.58 per cent (530.63 million dollars) of the total capital imported in the third quarter.

Investment experts attributed the sell-offs and the attendant foreign investment outflows to political risks, saying the trend would be sustained throughout the election period. Mr Sola Oni, a chartered stockbroker and Chief Executive Officer, Sofunix Investment and Communications, said massive share dumping by nervous portfolio investors and their Nigerian counterparts who were apprehensive over the 2019 general election led to the trend.

He said the development was reinforced by unguarded utterances of the political class.

The Managing Director/CEO of Cowry Asset Management, a Lagos-based investment banking firm in an interview with Daily Trust, said: “The country entered into a pre-term political situation, we saw the onset of political activities much earlier than was predicted.

“The earlier part of the year witnessed a lot of rumbling in the ruling party which scared foreign investors away from the market.”

He said Nigeria is facing a national election that draws resources away from every other thing, noting that at periods of uncertainty, investors do not invest in variable assets and that is where we are today as a country.

“Our economic fundamentals are strong but our political outlook is clouded and until that is resolved – which will be after the election – investors are not going to be bullish with Nigeria’s variable instruments,” he added.

Also reviewing the performance of the market in 2018, the Chief Executive Officer of the NSE, Oscar Onyema, said the NSE’s fixed income increased by 11.75 percent to N10.17 trillion from N9.10 trillion in 2017, while the turnover also increased by 22.34 percent, compared to 2017 driven by a search for an alternative asset class as opposed to equities.

According to Onyema, capital raising by corporate entities declined by 39.09 percent, with a total of N31. 47 billion raised in 2018, while the market also witnessed 50.53 percent increase in foreign outflows during the period from N402.26 billion in 2017 to N605.54 billion in 2018.

He attributed the trend to attenuated foreign participation due to shift to higher yielding assets with lower risks in developed countries, coupled with the impending political risks in the coming elections.

On investor participation, the NSE boss said foreign investors accounted for 50.87 percent participation in 2018, while domestic investors accounted for 49.13 percent.

Also commenting on market outlook for 2019, Onyema noted that investor sentiments in the first half of the year will be driven largely by uncertainty in oil prices as well as the general elections.

His words, “Accordingly, we anticipate volatility in equities markets in the first half of 2019, with enhanced stability post-elections. We believe swift approval and implementation of the 2019 budget will have a positive impact on companies’ earnings as well as consumer spending. Therefore, we expect an uptick in market activity during the second half of 2019.

“To enhance our listing prospects, we have strengthened our government’s engagement efforts on privatisation and listing of state owned enterprises, and we expect to take advantage of opportunities within this space during the year,” he said.

A financial expert, Prof. Uche Uwaleke, expressed optimism that the Nigerian stock market would rebound by the second quarter of 2019.

Uwaleke, the Head of Banking and Finance Department, Nasarawa State University, Keffi, noted that his optimism was based on reduced political risks, return of foreign investors, favourable oil price and strong fundamentals.

He said investors should not panic but recognise that the stock market, like every other market, is prone to business cycles of up and down.

Uwaleke said investors must be encouraged not to panic and be selling down but be patient and wait for the market to rebound possibly after the elections next year.

He said the major reason for the downturn was the exit of foreign investors occasioned by political uncertainties ahead of the elections.

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