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 Adedapo Adesanya
The United Arab Emirates has announced its decision to quit the Organisation of the Petroleum Exporting Countries (OPEC) to focus on national interests.
This dealt a heavy blow to the oil-exporting group at a time when the US-Israel war on Iran had caused a historic energy shock and rattled the global economy.
The move, which will take effect on May 1, 2026, reflects “the UAE’s long-term strategic and economic vision and evolving energy profile”, a statement carried by state media said on Tuesday.
“During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all,” it added. “However, the time has come to focus our efforts on what our national interest dictates.”
The loss of the UAE, a longstanding OPEC member, could create disarray and weaken the oil cartel, which has usually sought to show a united front despite internal disagreements over a range of issues from geopolitics to production quotas.
UAE Energy Minister Suhail Mohamed al-Mazrouei said the decision was taken after a careful look at the regional power’s energy strategies.
“This is a policy decision. It has been done after a careful look at current and future policies related to the level of production,” the minister said.
OPEC’s Gulf producers have already been struggling to ship exports through the Strait of Hormuz, a narrow chokepoint between Iran and Oman through which a fifth of the world’s crude oil and liquefied natural gas supplies normally pass, because of threats and attacks against vessels during the war.
The UAE had been a member of OPEC first through its emirate of Abu Dhabi in 1967 and later when it became its own country in 1971.
The oil cartel, based in Vienna, has seen some of its market power wane as the US has increased its production of crude oil in recent years.
Additionally, the UAE and Saudi Arabia have increasingly competed over economic issues and regional politics, particularly in the Red Sea area.
The two countries had joined a coalition to fight against Yemen’s Iran-backed Houthis in 2015. However, that coalition broke down into recriminations in late December when Saudi Arabia bombed what it described as a weapons shipment bound for Yemeni separatists backed by the UAE.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc bested four price decliners on the NASD Over-the-Counter (OTC) Securities Exchange on Monday, April 27. The alternative stock market opened the week bullish during the session with a 0.03 per cent uptick.
According to data, the security depository company added N2.61 to its share price to close at N76.26 per unit compared with the preceding session’s N78.87 per unit.
As a result, the market capitalisation of the platform increased by N820 million to N2.425 trillion from N2.424 trillion, and the NASD Unlisted Security Index (NSI) gained 1.38 points to finish at 4,053.97 points compared with the 4,052.58 points it ended last Friday.
The four price losers were led by NASD Plc, which slumped by N3.80 to sell at N34.70 per share versus N38.50 per share. FrieslandCampina Wamco Nigeria Plc fell by N1.45 to N98.10 per unit from N99.55 per unit, Food Concepts Plc slid by 27 Kobo to N2.43 per share from N2.70 per share, and Geo-Fluids Plc dipped by 9 Kobo to N2.91 per unit from N3.00 per unit.
The value of securities transacted by market participants went down by 82.0 per cent to N7.4 million from N41.3 million units, the volume of securities declined by 28.5 per cent to 319,831 units from 447,403 units, and the number of deals dropped by 34.1 per cent to 29 deals from 44 deals.
Great Nigeria Insurance (GNI) Plc was the most active stock by value on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by CSCS Plc with 59.6 million units sold for N4.0 billion, and Okitipupa Plc with 27.8 million units exchanged for N1.9 billion.
Also, GNI Plc was the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units traded for N415.7 million, and Infrastructure Guarantee Credit Plc with a turnover of 400 million units worth N1.2 billion.
By Adedapo Adesanya
The first trading day of the week in the currency market was bearish for the Naira in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Monday, April 27.
Yesterday, it lost N5.80 or 0.43 per cent against the United States Dollar to trade at N1,364.24/$1, in contrast to the N1,358.44/$1 it was traded last Friday.
In the same vein, the Nigerian currency depreciated against the Pound Sterling in the official market by N13.70 to close at N1,847.72/£1 versus the preceding session’s N1,834.02/£1, and slumped against the Euro by N11.56 to sell at N1,602.29/€1 versus N1,590.73/€1.
Also, the Nigerian Naira tumbled against the greenback during the trading day by N5 to quote at N1,385/$1 compared with the previous rate of N1,380/$1, and at the GTBank FX desk, it traded flat at N1,370/$1.
The poor performance of the domestic currency could be attributed to liquidity shortage at the official currency market on Monday, which came amid surging demand for international payments. At $76.50 million, interbank liquidity printed higher across 79 deals, up from the $43.572 million reported on Friday.
Nigeria’s gross external reserves declined to $48.45 billion amid a month-long decline in inflows, amid uncertainties in the global commodity market. The depletion of foreign reserves could be partly attributed to the Central Bank of Nigeria’s intervention in the FX market.
The market remains perturbed by persistent concerns over liquidity constraints, policy transparency, and weakening confidence in Nigeria’s FX market, while boosters, including oil prices, continue to look rocky due to stalled discussions and unclear ceasefire negotiations between the US and Iran.
A look at the cryptocurrency market, Bitcoin (BTC) has been rejected near $79,000 three times in eight sessions, leaving the level as the de facto ceiling of its current trading range even as major cryptocurrencies trade lower over the past day. It lost 0.9 per cent to sell at $77,003.61.
Analysts say that upcoming US Federal Reserve policy decisions and top tech firms’ earnings this week could provide the catalyst to push bitcoin decisively above $80,000.
The market also continued to weigh Iran’s interim deal proposal to reopen the Strait of Hormuz, which failed to advance over the weekend. The White House said US officials were discussing the latest Iranian proposal but maintained “red lines” on any deal to end the eight-week war.
Solana (SOL) dropped 1.8 per cent to $84.25, Ripple (XRP) went down by 1.6 per cent to $1.39, Ethereum (ETH) depreciated by 1.3 per cent to $2,290.00, Binance Coin (BNB) declined by 0.5 per cent to $625.18, and Cardano (ADA) fell by 0.2 per cent to $0.2480.
However, Dogecoin (DOGE) rose by 2.0 per cent to $0.1002, and TRON (TRX) appreciated by 0.2 per cent to $0.3242, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
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