Capital market experts have linked the unprecedented lull witnessed in the nation's stock market in the first quarter (Q1) to shift in the demand for equities for fixed income securities by Foreign Portfolio Investors, FPIs.
The experts also attributed the downturn to the exit of foreign investors that play dominant role in the stock market following the unstable macroeconomic environment after massive sell-off of shares.
According to them, another major factor was the delisting of 25 listed firms from the daily official list of the Nigerian Stock Exchange (NSE).Specifically, an economist, Johnson Chukwu said equities market has been sluggish because the PFAs were not aggressively investing in the equities market.
"The FPIs had taken their position in 2017 in the equities market and that was why we saw the 42 per cent appreciation of the market, but in the Q1'18 FPIs invested $701.61 million in equity, $335.88 million in Bonds, $3.527 billion in money market, while total capital imports stood at $6.303 billion. So the equity market was sluggish in Q1'18 as foreign investors began to repatriate their dividend and also put demand pressure in the foreign exchange market in response to declining yield on government securities."
He pointed out that while the NSE delisted 25 listed firms, only three new five new issues were recorded in the last three years."The equities market suffered and no issuer want to come to the market due to low market prices. Among the 25 delisted firms, three delisted on their own while NSE compelled the rest.
"This is because they were unable to meet up with the post-listing requirements. The environment was indeed challenging that companies that were relatively strong and listed have become so weak that they could not meet up with the post-listing requiremenst.
Chukwu, however cautioned the domestic retail investors to be careful in their investment decision on equities as the market is likely to record continuous drop given the challenging macroeconomic environment in the build up to general election.
The Chief Research Officer of Investdata Consulting Limited, Ambrose Omodion said investors are currently trading with caution because of fear of political risk and the believe that any perceived violence in the country may trigger panic and massive dumping of shares.He said the development has spurred apathy and low investors confidence in the market as foreign investors that play dominant role have resorted to massive selloff of shares in the market.
"The weak response to earnings surprises is evident in low liquidity in the market, especially as at April-end when Nigeria's 2018 budget was still facing so much uncertainty, leaving the economy to run entirely on monetary stimulus."
The investment analyst however argued that the sustained low valuation in the market may trigger high demand for stocks as market all over the world is cyclical in nature.The Publicity Secretary of the Independence Shareholders Association, Moses Igbrude explained that the downward movement of the market in the last quarter was an indication that the foreign investors are exiting the market.
"This is as a result of the approaching elections especially the recent crisis that engulfed the ruling party Congresses. It is just a sign or indication of what might come in the main elections and it is not favorable to the capital market and economic.
"As I always say, getting local investors more involved is the solution to the persistent problem of instability that occurs in any slightest negative issues in country. I am encouraging Nigerians investors to take strategic position instead of dumping the shares for they will return when stability returns."