Historically, the Nigerian stock market during the month of July has always been unstable in terms of performance, making it difficult to predict, especially with uncertainties that surround the current political environment, given that the ruling party’s economic agenda and leadership before and after the general elections have remained unclear.
It is very unpredictable at this point to expect whether it is an up or down market in July, looking at the first week negative performance of the month, but an oscillating market in this second half will likely close the year marginally up or flat as recorded in the first-half.
Nigeria post-election economy and market have been characterized by weak macroeconomic indices and bearish sentiments which had triggered the ongoing selloffs in the equity market. The economic front post the 2019 elections has been unclear, keeping many international and domestic investors on the sidelines, due to the unsettled political environment even long after the exercise. This situation has lingered partly on account of the weak economic indices in the first half of year, despite the rally in crude oil prices at the international market and the interest rates stability in the U.S.
There is also the continued delay by the government of President Muhammadu Buhari in constituting his cabinet, six months after he was re-elected and five weeks after his inauguration for a second and final four-year. A cabinet in place would have impacted the broader economy positively through quick approval and release of funds to execute new and ongoing capital projects, while also restoring the confidence of domestic and foreign investors.
Irrespective of the extended negative outing for the first trading week of the second half that recorded five consecutive sessions of losses, the rest of the year is full of uncertainty and mixed expectations as events unfold into the period of political intrigues, economic reforms agenda and implementation of policy that will boost the economy and at the same the ones that will mar the system, all these will influence investment decision in the short to medium term. There is the hope of economic revival looking at the monetary policy position and agenda in the recently released blue print for the next five years.
On the strength of the prevailing monetary policy stance and despite the mixed macroeconomic indices, we expect a positive outlook on Nigeria’s growth trajectory in the reminding days of the year albeit at a slow pace.
Going into the rest of the year, we expect a more cordial relationship between the three arms of government that will support quick reforms, implementation of the 2019 budget and other actions capable of boosting the expected economic recovery.
It is obvious that the bulk of the revenue that supports government expenditure is derived from crude oil sales, but despite the consistently high price since most of 2018, the oil sector component of Nigeria’s GDP underperformed its non-oil peer. The oil sector expanded by 1.14%, down compared to 2.0% by the non-oil sector, a situation that is attributable to three consecutive quarters of contraction (Q2-Q4). This was followed the declaration of Force Majeure on some oil wells (e.g. Nemebe-Creek pipeline in Q2), low domestic output (Q3) and weak global demand (Q4).
As mentioned earlier, to avoid imminent systemic collapse of the economy in the face of the rising insecurity, the government needs to wake up from slumber and revisit its Economic Recovery and Growth Plan (ERGP) initiative which failed to deliver on its three broad strategic objectives. They are restoring growth; investing in people and infrastructure to drive growth, and building a globally competitive economy that is dragging feet today.
Way Forward For The Rest Of 2019
1. Government at all level should focus on fixing the economy, reducing insecurity and attracting foreign and domestic investments, thereby generating employment for the people.
2. The government should borrow less and allow the real sector access cheaper funds to trigger national productivity again, which will engender stronger growth.
3. Regulatory bodies and government agencies should collaborate to provide a framework that will ameliorate the business environment and boost the different sectors of the economy.
July has been a dicey month On Nigeria’s Bourse
Nonetheless, the protracted down market has created opportunities for new positioning as the half-year earnings reporting season kicks off soon, which could have a stimulus effect when combined with a release of the long-awaited cabinet list. The combination will, no doubt, impact positively on the market fundamentals.
Equity price movement as we have always noted in INVESTDATA is a function of earnings and other information emanating from a particular sector of the economy which is expected to attract market players for different investment goals.
What to expect in July and August
• Listing of Airtel Africa on the Nigerian Stock Exchange to boost market capitalisation
• More quarterly and very few full-year earnings would be released. Earnings from blue-chip companies may strengthen market fundamentals, if positive and beat estimates.
• Interim dividend expectation especially from financial services stocks
• High market volatility as a result of selloffs and some disappointing numbers that will be released this period. Also, the source of funds flowing into the market may cause fluctuations, giving that both local and foreign institutional investors trade thereon. There is the factor of the Federal Government crowding the private sector out of the financial market, with their offer of high and mouth-watery rates.
• Investors are expected to reshuffle their portfolios and invest in equities with strong fundamentals and prospects of growing their earnings going forward.
• A more vibrant market due to market players positioning for the second half of the year, even as we expect liquidity to improve more.
• Market outlook for these months are dicey but invest wisely, using dates, bids, offers and volume when taking decisions.
• Managing risk and protecting capital at this point is very important, so you will be able to determine when to buy or sell by watching the stocks and the market, using technical analysis tools.
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