Post Views: 176 Professor of Finance & Capital Market, and head, Banking and Finance Department, Nasarawa State University, Keffi, Prof. Uche Joe...
Professor of Finance & Capital Market, and head, Banking and Finance Department, Nasarawa State University, Keffi, Prof. Uche Joe Uwaleke, on Wednesday in Lagos urged investors to take advantage of prevailing low equity prices on the Nigeria Stock Exchange (NSE) to boost their returns on investments.
This, he noted, will enable such investors to take advantage of opportunities offered by an imminent market reversal, which he forecast could happen by end of the second quarter.
Factors that could drive the anticipated rebound in the third quarter, according to Uwaleke, in a presentation at a quarterly forum organized by members of the Capital Market Correspondent’s Association of Nigeria (CAMCAN), in Lagos, where he was guest lecturer, based his outlook on inauguration of the President Muhammadu Buhari administration for a second-term and constitution of a new cabinet.
Others, he said, include: a possible lowering of the benchmark Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN), the recently increase in minimum wage to N30,000, rising oil price and continued stability in foreign exchange (FX), all of which would impact on the market, going forward.
Prof. Uwaleke, who spoke on the theme: “Stock Market in the first quarter 2019 and post-election prospects,” said already, the average Price/Earnings (P/E) ratio of the Nigerian bourse ranks lower than those of established global investment firms, offering more robust room for growth.
Uwaleke, who doubles as the Abuja branch chairman of the Chartered Institute of Bankers of Nigeria (CIBN), Abuja branch, listed other factors that will drive stock market’s reversal in third quarter to include, continued moderation in inflation, steady growth in Nigeria’s Gross Domestic Product (GDP), early signing of 2019 budget and implementation, improved growth in the non oil sector amongst others, adding that “all these projections are higher than what we saw in 2018”
The planned introduction of derivative instruments in the market by the Securities and Exchange Commission (SEC), for which preparations have reached an advanced stage at both SEC and the Nigerian Stock Exchange (NSE), he continued, would help both foreign and domestic investors hedge their investments.
“The NSE is really waiting for SEC to finalize the rule for the derivatives to be introduced, it will give investors room to hedge risks”, Uwaleke added, stressing that the CBN’s MPC triggered the market supportive move in March 2019, by cutting MPR by 50bps. The reduction after 33 successive months brought MPR to 13.5%, from 14%, expressing hope of a further reduction in the MPR soon.
“Lower MPR will free funds for investments or lending to firms for expansion which will improve their earnings and deliver more value to investors. It has a way of attracting investors, opening the market and hedging risks”, he stated.
The planned listing of MTN Nigeria on the NSE, he continued, will boost market liquidity, just as it would diversify offerings as the company becomes the second biggest stock by market capitalization, after Dangote Cement Plc.
He added that the Nigerian Pension Commission (PENCOM)’s six-fold structure rule expected to boost investments in the equity market, as well as the margin lending rule, currently being worked on by the SEC and efforts at deepening domestic investors participation in the market were some of the measures expected to driver early market reversal in Netherlands third quarter.
Speaking on how minimum wage increase will impact positively on the market, he said “this is the time to take position, the minimum wage will be positive for the capital market, inflation is caused by weak aggregate demand, but new minimum wage will rather boost aggregate demand, driven by greater number of people having more disposable income and also money to save.”
He said another economic recession at this time is unlikely, because the factors that contributed to the recession in 2016, are currently none existent, including the rising crude oil price, stable production and healthy external reserves, just as the inflation rate is dropping.
Speaking on some external factors likely to drive market reversal in Q3 2019, Uwaleke listed, crude oil price, declining trend of yield in the US which will likely bring about capital flow to emerging markets, Easing US-China trade tension , and easing Brexit tension, amongst other factors which will impact Nigeria’s market positively.
He noted that the market closed the Q1 2019 bearish, caused by what he termed as systemic risk and non-systemic risk.
“The non-systemic risks are risks associated with the operations of the companies, a risk that is particular to a company and doesn’t affect other companies. Non-systemic risk contrasts with systemic risk, which is a risk that applies to all companies in a market or industry and doesn’t affect other companies, while systemic risk, affects all companies in a market or industry,” he said.
He also attributed the Q1 2019 market decline partly to portfolio rebalancing by investors, movement from equities to fixed income, herding behaviors’ of investors, flight for safety by foreign investors, panic by investors, among others.
Photo Caption: Chinyere Joel-Nwokeoma, Chairman, Capital Market Correspondents Association of Nigeria (CAMCAN), Prof. Uche Uwaleke, Nasarawa State University Keffi and Research Fellow, the Securities and Exchange (SEC); and Abimbola Babalola, Head, Marketing Surveillance & Investigation of the Nigerian Stock Exchange (NSE) at the 2019 First Quarter Forum of CAMCAN in Lagos.