Consider These Critical Risks Before Investing in Stocks This Year

Image

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.

Share
Related Stories
Image
28-February-2024

Nigeria’s Stock Market Stands Still to Honour Ogunbanjo’s Legacy

By Aduragbemi Omiyale The stock market in Nigeria stood still for the late former chairman of the Nigerian Exchange (NGX) Group Plc, Mr Abimbola Ogunbanjo, on Tuesday, February 27, 2024. The day was set aside to pay homage to the enduring legacy of the esteemed luminary, who died in a helicopter crash in the United States a few weeks ago along with the group chief executive of Access Holdings, Mr Herbert Wigwe, his wife and son. The NGX Group held an Afternoon of Tributes and Closing Gong Ceremony yesterday for him in collaboration with the Coronation Group. In a poignant

Image
29-February-2024

Naira Gains as Binance, Others Halt USDT, USDC Exchanges Amid Crackdown

By Adedapo Adesanya The Naira appreciated against the US Dollar in the foreign exchange (FX) market on Wednesday, February 28 as crypto exchanges like Binance, will no longer allow users to buy the US Dollar Tether (USDT) and US Dollar Coin (USDC) stablecoins with Naira after renewed scrutiny from the Nigerian government. The regulatory crackdown continued in the Nigerian FX market as the country moved to aggressively suppress the activities of spectators and traders across digital platforms. On Wednesday, the Nigerian government tricked two executives of Binance – an American and a British Pakistani into the country for a meeting

Image
01-March-2024

Local Stock Market Rebounds, Closes Last Day of February 0.68% Higher

By Dipo Olowookere The last trading session of February 2024 at the Nigerian Exchange (NGX) Limited ended on a positive note as it rebounded by 0.68 per cent after the interest rate hike scare. The growth posted on Thursday was triggered by bargain-hunting in financial stocks, especially those selling at cheaper prices after the sell-offs in the past few sessions. However, profit-taking persisted in the other sectors of the bourse, with the energy, and consumer goods indices closing lower by 0.33 per cent, and 0.18 per cent, respectively. Business Post reports that the banking space rose by 6.14 per cent,

More Stories
Image
19-May-2021

Crude Oil Slides After Hitting $70 as Supply Fears Heighten

By Adedapo Adesanya Earlier on Tuesday, crude oil reached $70 per barrel, but fears that the market may soon be flooded with supply from Iran after making progress in its talks with the United States dragged the price downwards. At the market yesterday, the Brent crude depreciated by $1.03 or 1.48 per cent to trade at $68.43 per barrel, while the West Texas Intermediate (WTI) crude lost 78 cents or 1.18 per cent to sell at $65.49 per barrel. Prices of the black gold deflated after the market received information that “important news” would be released regarding the Iranian nuclear

Image
15-October-2022

Honeywell, GTCO Help NGX Recover N25bn from Profit-Takers

By Dipo Olowookere The Nigerian Exchange (NGX) Limited closed 0.09 per cent higher on Friday on the back of renewed buying pressure on financial stocks. GTCO was one of the equities offshore, and local investors were interested in. Though it is currently trading below its true value, it allowed traders to acquire the shares at a relatively cheap price with expectations that it would rise in some months to come. Also, investors are showing interest in Honeywell Flour and yesterday, it finished as the best-performing stock after it gained 9.86 per cent to close at N2.34. Coronation Insurance appreciated by

Image
18-November-2021

Seplat Energy Chairman ABC Orjiako Steps Down After 12 Years

By Dipo Olowookere The Chairman of Seplat Energy Plc, Mr A.B.C Orjiako, will be stepping down from the position in May 2020, a statement from the company has disclosed. The businessman has been in the eye of the storm lately but it was not stated in the notice if his decision to step down was connected to reports in the media. It was revealed that Mr Orjiako is exiting the board of the company at the next annual general meeting (AGM) of the organisation slated for next year when he will be succeeded by an independent chairperson in line with

Image
13-August-2021

IPOB Sit-at-Home Order Lacks Economic Wisdom—Ojiba

By Ashemiriogwa Emmanuel **Calls for Participation in CVR in South-East The South-East Coordinator of the All Progressives Congress (APC) Ward-To-Ward Ambassadors (WWA), Mr Akunwata Ejoh Ojiba, has called on the members of the Indigenous People of Biafra (IPOB) to stand over its latest policy of shutting down the South East every Monday. The party’s coordinator, speaking in Onitsha, Anambra State, said that the policy was detrimental to the sustainability of the population of the zone in Igboland and that there was no economic wisdom in shutting down the region. This followed a statement issued last Friday by the IPOB publicity

Image
16-November-2020

Consumers Gear up for Festive Season Like no Other

The global retail sector is in an unprecedented state of flux and as the end of the year approaches, Nielsen has identified a range of evolving consumer groups as well as four Holiday/Festive consumer behavioural resets related to this crucial holiday period. Nielsen Retail Intelligence MD for Sub-Sahara Africa Kelly Arnold comments; “As the end of the year approaches, upcoming festivities are going to look very different for consumers depending on where they live, what restrictions they face and how COVID-19 has changed their spending habits. However, the reality is that the ‘golden quarter’, the crucial holiday trading period is

Image
23-October-2021

FBN Holdings Confirms Otedola as Shareholder with 5.07% Stake

By Dipo Olowookere Mr Femi Otedola now controls a 5.07 per cent stake in FBN Holdings Plc, the company has confirmed. This is coming barely 24 hours after the financial institution said it was not aware of the businessman being a major investor in the organisation. There were reports a day earlier that the former Chairman of the defunct Forte Oil Plc was now the single largest shareholder of the firm, which owns First Bank of Nigeria Limited. “The attention of FBN Holdings Plc has been drawn to media reports today, October 22, 2021, purporting that a certain individual has

Image
15-February-2017

Fewer Stocks Outperforming as Market Moves Higher

By Gavekal Financial Just 44 percent of developed market stocks have outperformed the MSCI World Index over the past 200 days compared to 57 percent outperforming on average over the past 15 years. There is a fairly strong negative correlation between the percentage of stocks outperforming and the direction of the index. As stocks move higher, fewer stocks outperform. The current reading of 44 percent has been reached just twice in the past 15 years: in 2000 and 2012. So even as correlations have fallen to multi-year lows in many parts of the world, the current environment isn’t exactly a

Image
16-May-2022

Imperatives of Adopting Extra-Curricular Nation Building Approach

By Jerome-Mario Chijioke Utomi A path-breaking study has shown that globally, governments are resource and bandwidth-constrained and hence, need to prioritize productivity-enhancing policies. To do so requires information on the nature and magnitude of market failures on the one hand, and government capacity to redress them successfully on the other hand. This piece, however, believes that the second responsibility (capacity to redress market failures) remains the greatest challenge in the country’s leadership discourse as it abbreviates development and breeds policy decisions that perpetuate poverty and consolidate powerlessness. Despite these observed leadership shortfalls, which daily distort social justice and economic empowerment,

Ad
Ad
Recent Stories
Image
01-March-2024

Harvard Business School Introduces Tony Elumelu Foundation Case Study

By Modupe Gbadeyanka A case study to spotlight the role of celebrated African businessman, Mr Tony Elumelu, in transforming the development agenda on the continent through his Tony Elumelu Foundation (TEF) has been introduced by the Harvard Business School. The case study, launched on Thursday, February 29, 2024, will critically look into how the former banker is catalysing entrepreneurship in Africa through his Africapitalism approach. At its unveiling before a class of graduate students at Harvard Business School, Mr Elumelu said, “TEF is creating economic hope and opportunity for African entrepreneurs. We know that entrepreneurship is the solution to youth

Image
01-March-2024

Unlisted Securities Remain in Negative Territory by 1.36%

By Adedapo Adesanya Correction at the NASD Over-the-Counter (OTC) Securities Exchange continued as it recorded a 1.36 per cent loss on Thursday, February 29. The bourse lost N21.34 million of its value during the trading session to close at N1.542 trillion compared with the preceding day’s N1.564 trillion and the NASD Unlisted Security Index (NSI) went down by 15.74 points to end the day at 1,138.05 points versus Wednesday’s 1,153.79 points. Yesterday’s decline was influenced by Aradel Holdings Plc, which further suffered further profit-taking, causing its price to drop N98.25 to close at N2,401.75 per share versus the preceding session’s

Image
01-March-2024

Naira Firms to N1,595/$1 at NAFEX, Weakens to N1,500/$1 at Black Market

By Adedapo Adesanya The Naira ended a tumultuous February as it recorded a price appreciation f 0.09 per cent or N14.40 against the US Dollar on Thursday, February 29, in the Nigerian Autonomous Foreign Exchange Market (NAFEM). Data obtained from the FMDQ Securities Exchange showed that the value of the local currency closed at N1,595.11/$1 during the session compared with the preceding day’s N1,609.51/$1. Also, the Nigerian currency improved its value against the Pound Sterling in the official market yesterday by N20.34 to close at N2,046.19/£1 compared with the preceding session’s N2,066.53/£1 and strengthened against the Euro by N16.5 to

Image
01-March-2024

Oil Down as US Inflation Signals Weak Crude Demand

By Adedapo Adesanya  Oil was down on Thursday as inflation data in the United States implied a softening of the world’s biggest economy that could weaken crude demand. Brent futures went down by 6 cents to $83.62 a barrel and the US West Texas Intermediate (WTI) futures depreciated by 28 cents to $78.26 a barrel. The US Federal Reserve’s preferred inflation gauge, the US Personal Consumption Expenditures (PCE) index, showed January inflation in line with economists’ expectations. The index rose 0.3 per cent last month, the Commerce Department’s Bureau of Economic Analysis said. Data for December was revised lower to

Image
01-March-2024

Local Stock Market Rebounds, Closes Last Day of February 0.68% Higher

By Dipo Olowookere The last trading session of February 2024 at the Nigerian Exchange (NGX) Limited ended on a positive note as it rebounded by 0.68 per cent after the interest rate hike scare. The growth posted on Thursday was triggered by bargain-hunting in financial stocks, especially those selling at cheaper prices after the sell-offs in the past few sessions. However, profit-taking persisted in the other sectors of the bourse, with the energy, and consumer goods indices closing lower by 0.33 per cent, and 0.18 per cent, respectively. Business Post reports that the banking space rose by 6.14 per cent,

Image
29-February-2024

EnjoyCorp Buys Heineken’s Stake in Champion Breweries

By Adedapo Adesanya EnjoyCorp Limited, a holding company established for food, beverage and hospitality brands, has reached an agreement with Heineken B.V., to acquire its entire shareholding in The Raysun Nigeria Company Limited. The firm holds an 86.5 per cent stake in Champion Breweries Plc, a leading regional brewer listed on the Nigerian Exchange (NGX) Limited. The proposed transaction is subject to obtaining requisite regulatory approvals and the parties expect to close the transaction in the second quarter of this year (Q2 2024). EnjoyCorp intends to keep Champion Breweries Plc listed on the NGX. Heineken will continue to support Champion

Image
29-February-2024

Nigerian Navy Impounds Stolen N8.6bn Crude, Others in Three Weeks

By Adedapo Adesanya The Nigerian Navy, through the Troops of Operation Delta Sanity, has deactivated 41 illegal refining sites and impounded stolen crude oil and other products worth N8.6 billion in three weeks. The Director of Naval Information, Mr Adedotun Ayo-Vaughan, a Rear Admiral, made the disclosure in a statement, saying that various Nigerian Navy platforms were deployed for the operation meant to combat oil theft and illegal oil bunkering plaguing Nigeria’s maritime environment. He said that between February 5 and February 22, a total of 51 wooden boats and three fibre ones were apprehended, while 104 illegal refining ovens,

Image
29-February-2024

The Future of Blockchain and Cryptocurrency in the Online Gambling Industry

The online gambling industry, characterized by its rapid evolution and global reach, has established itself as a dynamic and lucrative sector. With millions of enthusiasts partaking in diverse gambling activities, ranging from casino games and sports betting to poker and more, it has transcended geographical boundaries and time zones. The allure of convenience, accessibility, and the thrill of gaming from the comfort of one’s own space has fueled its relentless growth. As technology continues to redefine the boundaries of the digital world, the online gambling sector finds itself at the forefront of innovation, poised for further expansion and transformation. The

Image
29-February-2024

We Need Investment in Mass Transit After 50% Drop in Petrol Imports—Tinubu

By Aduragbemi Omiyale President Bola Tinubu has disclosed that Nigeria has reduced the importation of premium motor spirit (PMS), commonly known as petrol, by 50 per cent since his administration announced an end to fuel subsidy last year. On Monday 29, 2023, during his inaugural speech in Abuja, Mr Tinubu declared that “fuel subsidy is gone” and almost immediately, the price of the product went up across the country. Before his announcement, a litre of petrol was selling at N165 but at the moment, it sells between N568 per litre and N650 per litre, depending on the location and fuel

Image
29-February-2024

Navigating the Complex World of Investing: What Novices Need to Know

Have you finally decided to take the leap into the exciting arena of investing? Not only is this an excellent way to secure a lucrative nest egg for the future, but many have begun to use these opportunities as a springboard for their businesses. However, appreciating the intricacies of online trading is no easy task. A great deal of preparation will be required and mistakes can occur on occasion. This is why knowing where to begin is one of the best ways to establish strong foundations. Let us therefore cut through a fair amount of “fluff” and examine a handful