19 February 2019

Nigeria: Poll Shift Hits Exchange Rate, Stock Market Loses N196 Billion

The financial services sector yesterday reacted negatively to the uncertainty in the nation's political environment as investors priced in the risks of election postponement on the stock market and exchange rate.

The development came just as analysts polled by The Guardian at the weekend predicted that investors and financial transactions would plummet as a first reaction.

Specifically, investors lost N196 billion from share depreciation across all segments of the listed equities, even as analysts from Afrinvest Securities Limited said the bearish run would be sustained this week due to uncertainties surrounding the polls.

Before the postponement, there was a positive sentiment across board, as the market rallied in about seven consecutive days, with investors making up their mind over whoever emerges, since all the fundamentals of the market looked good.

For instance, at the end of transactions last week Tuesday, the All-Share Index (ASI) had gained 680.44 absolute points, representing an increase of 2.14 per cent, to close at 32,462.31 points.

Similarly, market capitalisation increased by N254 billion, to close at N12.106 trillion.

Regrettably, yesterday, the market capitalisation, which opened at N12.2 trillion, lost N196 billion to close at N12.004 trillion, with the ASI depreciating by 1.6 per cent to 32,190 from 32.715 at which it opened yesterday.

The Chief Executive Officer of Crane Securities Limited, Mike Ezeh told The Guardian that the postponed election was taking its toll on the market performance because it is information-driven.

"The effect of political violence, utterances, crisis of any sort impact negatively on the market because they connote negative signals to investors, particularly about rising insecurity in the country.

"Whenever there are signs of insecurity, investors become apprehensive and shy away from such market. Our politicians must behave well. They are very rude and primitive for now," he said.

An independent Investor, Amaechi Egbo, said: "The postponement has heightened the political risk in the environment and we should expect that investors will respond in their own way.

"The last-minute postponement has raised doubts on the capacity of the electoral umpire and this has actually sent a wrong signal to the stock market. We have seen this cycle repeat itself over time," he said.

At the foreign exchange (forex) market, the forwards segment, where investors book dollar exchange ahead, lost N4 on the one-year non-deliverable naira forward at N401 per dollar, against N397 per dollar in the previous session.

A daily market report of the FSDH Merchant Bank Limited, showed that activity at the interbank foreign exchange market remained low, with quotes at the official window for forex ranging between N306.30/$ and N307.3/$

Investors had last week booked shares and government securities in anticipation of post-election rally buoyed by hopes of elections being free from uncertain outlook.

"The permutation boosted dollar liquidity on the currency market, but the unexpected outcome over the weekend has hit the yields of government's dollar-denominated bonds, with possibility of affecting the demand for domestic naira debt auction slated for this week," a market trader, Adewole Afolayan, said.

Also, FXTM's research analyst, Lukman Otunuga, said the lost fortunes of the local currency yesterday followed the sudden postponement of the elections.

"With the nation speculated to lose roughly $1 billion in Gross Domestic Product (GDP) as a result of this, the near-term economic outlook has gone sour. However, it may be too early to jump to any conclusion over what impact this could have on sentiment and macro-economic conditions.

"The uncertainty from this development will certainly impact the Nigerian stocks in the near term, with the ASI already down by 1.61 per cent lower as of writing," he said.

At the official Bureau De Change segment, the naira has maintained its 18-months stability despite the odds, exchanging at N358 per dollar.

The President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, commended the Central Bank of Nigeria (CBN) for financial sector reforms, which, according to him, have forestalled spikes and volatility in an election year.

"The dexterity of the apex bank in ensuring that naira remained stable in an election year is commendable. Election years, as witnessed during the 2015 general elections, are marred by exchange rate volatility and spikes in the market."

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