Economy
Consider These Critical Risks Before Investing in Stocks This Year
By Dipo Olowookere
Investing in stocks is a profitable business if you understand the market very well, but when you fail to know trends, you might bite your fingers very hard like some did in 2008 during the market crash.
Next year, Nigerians head to the polls to elect new leaders and representatives and the polity is already building up.
Already, happenings in the political scene have been hitting the stock market and as the year runs out, more effect would be felt by the market.
However, analysts at Zedcrest Research have highlighted some political risks that may have huge negative effect on the Nigerian stock market and they are presented below.
The Fixed Income market has been on a rally of late, hinged on renewed interests from both local and offshore clients, due to investors’ expectation of further moderation in inflation rates and a tilt to a more accommodative monetary stance by the CBN, with the recent reduction in its spate of OMO issuances.
Foreign investors have also been attracted by the broader stability in the country’s macro-economic environment, largely hinged on positive developments in oil prices and relative stability in its FX Market.
We however note that there exists some downside risk factors in the broader political and economic space which could spook the wheels of the recent momentum in the markets. The key risk being a possibility of capital reversals by FPI’s in reaction to political risk factors ahead of the 2019 General elections.
Major Risk Factors
1.) Delay in Budget Passage
The delay in the passage of the 2018 budget is being felt negatively as the budget is required by public and private sector stakeholders to plan and manage their economic activities. The 2018 budget which was put at N8.612 trillion and presented to the National Assembly by President Muhammadu Buhari on Nov. 7, 2017, was tagged “Budget of Consolidation’’, but the absence of a budget calendar and lack of coordination amongst the executive and legislature have been the major causes of the delay. While we expect the issues around the budget delay to be resolved soon, a continued delay would however send signals of instability and uncertainty to prospective local and offshore investors.
2.) Regional Conflicts
The Nigerian socio-political climate has been beset by several conflicts in recent times. Notable amongst these include the recent Shiite protests in which large number of supporters of the Shite Leader El-Zakzaky stormed the state capital to protest the continued detention of their Leader. We have also witnessed recent attacks by the Boko-haram sect in the north eastern region which has caused some angst amongst members of the International community.
Most Notable amongst these conflicts however remains the continued killings by rampaging herdsmen across most of the North central and some southern states of the country. We fear that if these conflicts are not properly handled by the Government, they may result in heightened levels of insecurity and an escalation of tensions ahead of the upcoming General elections.
a.) Shiite Protests
There has been escalating tensions in recent times from Members of the Islamic Movement of Nigeria (IMN) in protest of the continued detention of their leader, Ibrahim El-Zakzaky, whom the Nigerian government has kept in custody for over two years, without trial and despite court orders for his release. The protests, which started peacefully on Monday and Tuesday last week turned violent after police forcefully dispersed the protesters. We fear that if this situation is not carefully handled, it might degenerate into a more serious security concern.
b.) Boko-haram Insurgency
Despite claims by the Federal Government of a complete subjugation of the Boko-haram Militant Sect, we have witnessed recent spate of attacks from the terrorist group, which has once again renewed fears of a debilitating security situation in the North-eastern part of the country.
c.) Herdsmen Killings
The Seemingly intractable killings by Fulani herdsmen across most of the Middle belt and southern states, has been one of the most controversial issues facing the current administration, which has drawn a lot of criticisms from both local and foreign governments, politicians and human rights activists. Of utmost concern however is the Federal Government’s seeming inability to find a lasting solution to the menace. We fear that a lack of decisive action by the FGN may result in increased tensions as members of the affected communities may be forced to defend themselves from any future attacks.
3.) Inflationary Threats
Most experts have said that the inflation target of the Central Bank of Nigeria (CBN) would not be feasible, due to the downside risks occasioned by electioneering spending and implementation of minimum wage. Inflationary pressures are likely to resume in the third quarter of the year on the back of waning base effect, increased electioneering spending and the implementation of minimum wage by government.
RECOMMENDATION:
We believe the aforementioned risk factors should be critically monitored by investors, as they may portend for significant reversals in offshore capital flows and an uptrend in fixed income yields if they worsen or do crystallize. We consequently advise investors to exercise caution in their investments ahead of the 2019 General elections, whilst advising a tilt to the shorter end of the Naira yield curve for risk averse investors.
By Dipo Olowookere
About 0.04 per cent was recovered on Friday from the loss recorded by the Nigerian Exchange (NGX) the previous due to profit-taking.
Yesterday, investors were in the market with renewed vigour, mopping up stocks trading at relatively cheaper prices.
According to data, the insurance counter gained 0.41 per cent, the banking sector appreciated by 0.38 per cent, and the consumer goods index grew by 0.14 per cent.
The gains achieved by these three sectors were enough to lift Customs Street at the close of business despite the 0.26 per cent decline printed by the industrial goods segment and the 0.14 per cent loss suffered by the energy industry. The commodity counter was flat during the session.
A total of 43 equities gained weight on the last trading day of this week, while 26 equities shed weight, indicating a positive market breadth index and strong investor sentiment.
Red Star Express increased its share price by 10.00 per cent to N13.20, NCR Nigeria grew by 9.97 per cent to N128.55, SCOA Nigeria inflated by 9.96 per cent to N14.90, Omatek appreciated by 9.94 per cent to N1.77, and Deap Capital expanded by 9.85 per cent to N4.46.
On the flip side, McNichols decreased by 8.81 per cent to N6.00, Legend Internet crumbled by 7.56 per cent to N5.50, Cornerstone Insurance crashed by 6.48 per cent to N6.35, C&I Leasing contracted by 6.29 per cent to N8.20, and Austin Laz slipped by 5.78 per cent to N3.75.
Yesterday, 539.9 million shares valued at N16.7 billion were transacted in 48,023 deals versus the 1.0 billion shares worth N31.6 billion executed in 51,227 deals in the preceding day, implying a shrink in the trading volume, value, and number of deals by 46.01 per cent, 47.15 per cent, and 6.26 per cent apiece.
Zenith Bank was the most active for the day with 54.6 million stocks sold for N3.8 billion, Jaiz Bank traded 41.5 million units worth N359.4 million, Secure Electronic Technology transacted 37.7 million units valued at N39.2 million, Access Holdings exchanged 30.5 million units for N699.2 million, and Lasaco Assurance transacted 27.2 million units worth N68.3 million.
When the market closed for the day, the All-Share Index (ASI) went up by 72.21 points to 166,129.50 points from 166,057.29 points and the market capitalisation gained N31 billion to N106.354 trillion from N106.323 trillion.
By Adedapo Adesanya
It was a positive ending for the Naira this week after it further appreciated against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, January 16 by N1.33 or 0.09 per cent to sell for N1,417.95/$1 compared with the previous day’s N1,419.28/$1.
The domestic currency also gained N2.41 against the Euro in the official market to close at N1,647.51/€1 versus the preceding session’s closing price of N1,649.92/€1, however, it suffered a N7.97 loss against the Pound Sterling in the same market window to trade at N1,901.32/£1, in contrast to Thursday’s closing price of N1,893.35/£1.
In the same vein, the Nigerian Naira depleted against the Dollar at the GTBank FX counter by N2 to quote at N1,427/$1 compared with the previous day’s N1,425/$1, but strengthened against the greenback at the black market yesterday by N5 to settle at N1,485/$1 versus the N1,490/$1 it was exchanged a day earlier.
Improved supply conditions helped keep the market within range as exporters’ and importers’ inflows in addition to non-bank corporate supply enhanced liquidity as the Central Bank of Nigeria (CBN) made no visible intervention.
Stronger external inflows from foreign portfolio investors (FPIs) and improving current account dynamics, continue to align with structural support in the wider economy.
Nigeria has seen projections of a stronger economic or gross domestic product (GDP) growth and lower inflation in 2026, with these forecasts citing improved macroeconomic fundamentals and reform impacts.
As for the cryptocurrency market, it was mixed following selloff in precious metals and lower US stocks appeared to be denting crypto sentiment.
Gold and silver, both of which also enjoyed big rallies earlier this week, tumbled 1.2 per cent and 5 per cent, respectively while key US stock indexes — the Nasdaq, S&P 500 and Dow Jones Industrial Average — all reversed from early gains to modest losses in Friday trade.
Dogecoin (DOGE) shrank by 2.2 per cent to $0.1370, Ripple (XRP) slipped by 0.8 per cent to $2.05, Ethereum (ETH) went down by 0.7 per cent to $3,228.56, and Bitcoin (BTC) slumped by 0.6 per cent to $95,086.80.
Conversely, Litecoin (LTC) appreciated by 3.2 per cent to $74.48, Solana (SOL) rose by 0.4 per cent to $143.70, Cardano (ADA) jumped by 0.2 per cent to $0.3942, and Binance Coin (BNB) increased by 0.1 per cent to $935.88, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
Oil prices settled higher amid lingering worries about a possible US military strike against Iran, a decision that may still occur over the weekend.
Brent crude settled at $64.13 a barrel after going up by 37 cents or 0.58 per cent and the US West Texas Intermediate (WTI) crude finished at $59.44 a barrel after it gained 25 cents or 0.42 per cent.
The US Navy’s aircraft carrier USS Abraham Lincoln was expected to arrive in the Persian Gulf next week after operating in the South China Sea.
Market analysts noted that it doesn’t seem likely anything will happen soon. However, the weekends have become the perfect time for actions so as not offset the markets.
The market had risen after protests flared up in Iran and US President Donald Trump signalled the potential for military strikes, but lost over 4 per cent on Thursday as the American president said Iran’s crackdown on the protesters was easing, allaying concerns of possible military action that could disrupt oil supplies.
Iran produces approximately 3.2 million barrels per day, accounting for roughly 4 per cent of global crude production, so it was not a coincidence that markets rallied sharply through Tuesday and Wednesday as President Trump canceled meetings with Iranian officials and posted that “help is on its way” to Iranian protesters, raising fears of potential US military strikes that sent prices surging toward multi-month highs.
Weighing against those fears are potential supply increases from Venezuela.
The Trump administration is exploring plans to swap heavy Venezuelan crude for US medium sour barrels that can actually go straight into Strategic Petroleum Reserve (SPR) caverns, since not all all oil belongs in the reserve.
According to Reuters, the Department of Energy is considering moving Venezuelan heavy crude into commercial storage at the Louisiana Offshore Oil Port, while US producers deliver medium sour crude into the SPR in exchange.
Analysts expect higher supply this year, potentially creating a ceiling for the geopolitical risk premium on prices.
Some investors covered short positions ahead of the three-day Martin Luther King holiday weekend in the US.
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