The free fall in stock prices moderated as the market went down marginally by 0.69 per cent in August compared with a decline of 7.76 per cent in July.
In terms of market capitalisation, the market shed N117 billion in August as against over N1 trillion that was lost in July. The Nigerian Stock Exchange All-Share Index (NSE ASI) declined 0.69 per cent from 27,718.26 at the beginning of August to close the month at 27,525.81, market capitalisation fell from N13.508 trillion to N13.391 trillion.
But year-to-date the NSE has declined by 12.42 per cent, while market capitalisation has appreciated by 14.25 per cent. The difference in the NSE ASI and market capitalisation is due to the listing of MTN Nigeria Communications Plc and Airtel Africa Plc that added over N3 trillion to the value of the market.
Some market operators attributed the moderation in the decline in August to investors’ reactions to the constitution of the cabinet that would drive the economic and other policies of President Muhammadu Buhari.
According to a stockbroker, Mr. Ayo Oguntayo, “investors are gradually responding to the clearer picture President Buhari is giving about his administration through the appointment of ministers. About two months ago, there were uncertainties over who would drive the policies. But with the appointment and allocation of portfolio to the ministers, the coast is becoming clearer.”
In July when the market recorded its heaviest fall in recent times, an operator had attributed the development to the concerns of investors about the short-to-medium-term outlook for the economy.
The broker had explained that many investors found it difficult to come into the market then because they were yet to see people that would drive the economy in the next four years under Buhari.
“Besides, investors are weighing the impact the security risk and poor infrastructure will have on the performance of companies for the half year ending June 30, 2018. Until we see major triggers such as the appointment of competent hand to run the economy, and improvement in the infrastructure, the market will remain bearish for a long time,” the broker had said.
However, Oguntayo stated that considering the fact the ministers had been unveiled, some investors were beginning to take advantage of the low valuations in the market depending on the risk appetite and preference.
Speaking on the allocation of portfolios to the various ministers, analysts at Afrinvest Research raised some doubts in the key ministries.
For instance, they said in the oil and gas industry where progress had been negligible for decades, Buhari retained the position of minister of petroleum resources.
“In our opinion, the president lacks the agility and the skill set to transform the sector based on his performance in the same position for the past two years, hence momentum in the sector is expected to remain weak. We expect slow progress towards passing and implementing the reforms need to attract investment into the industry,” they said.
Afrinvest noted that in the Ministry of Finance, Budget and National Planning, the re-appointment of Mrs. Zainab Ahmed provided clarity on the direction of fiscal policies.
“Accordingly, we expect a sustained drive to boost tax collection to narrow the federal government’s widening fiscal deficit. But as we do not expect strong improvements in the short-term, we expect continued funding of deficits in the cheaper Eurobond market. The easy monetary policy in advanced markets makes this strategy even more compelling in the near term, but we note that currency risk lurks. In our view, this ministry remains one to watch as the FG’s fiscal challenges would partially dictate the pace of improvement in the economy. The concern is whether the FG would take necessary actions such as reining in spending and removing subsidies to free up more resources. In this regard, adopting the strategies employed during the first term of President Buhari would yield little progress,” they added.
Speaking on the works and housing as well as transport ministries, where Mr. Babatunde Fashola and Mr. Rotimi Amaechi respectively, retained their jobs, they said they were optimistic of the continuity of current priority projects and faster completion times.
“The key risk for these ministries is that capital releases may fall short of budget allocation as capital spending becomes increasingly discretionary in the face of weak revenue mobilisation and increasing recurrent expenditure,” they said.
According to Afrinvest, the Ministry of Industry, Trade and Investment is another important ministry under its watch.
