Investors shun stock market amid COVID-19 pandemic

Hope of the Nigerian Stock Exchange recovering amid the COVID-19 pandemic seems slim .

The nation’s capital market is feeling the heat as coronavirus continues to ravage not only Nigeria but the whole world.

Stocks in Asian countries and the US Stock futures slumped, as rising caseloads of COVID-19 in parts of America and China dampened hopes of a quick global economic recovery.

Following Nigeria’s first confirmed case of COVID-19 in late February and the announcement of a lockdown in Lagos on March 30, especially with crude oil prices crashing to a three-year low, foreign portfolio investors at the NSE have been edgy about what might happen to their investments in a country with a one-handed economy.

An analysis of the capital market showed that in a stretch of four months, the total transactions by foreign investors declined by 47.03 per cent from N242.91bn in March, to N128.67bn in April.

Total domestic transactions accounted for about 51 per cent of the total transactions carried out in 2019, whilst foreign transactions accounted for about 49 per cent of the total transactions at the same period.

On a monthly basis the NSE polls trading figures from market operators on their domestic and foreign portfolio investment flows. This further underscores the struggle of the country to attract and retain foreign investment for its economic prosperity.

However, the government expect the economy to contract by 3.4 per cent this year as a result of the pandemic, as Nigeria reported about 17,000 confirmed COVID-19 cases and more than 400 deaths.

Meanwhile, the cost of living has risen steadily, while annual inflation rose for the ninth straight month in May, to a two-year high of 12.4 per cent.

Some local investors, who spoke with Financial Street, had registered their displeasure over persistent dwindling performance of the stock market, claiming they have lost millions of naira.

Some of the investors range from petty traders, corporate individuals and students who bought shares through right issue and or initial public offering in the past.

Commenting on the development, a risk management expert in one of the commercial banks, Kehinde Adenuga, said, “Foreigners are net sellers and locals are net buyers, as assets look very cheap in naira terms. If you are a foreign investor, you still have the currency risk. It is not clear what direction we are going presently.”

Adenuga added, “I lost over N5.2m worth of shares at the market. The truth is that one can never tell the full impact of COVID-19 on the economy as long as the disease continues to confound governments across the world. So, one can only hazard a guess with respect to its impact quantification.”

According to a stockbroker, David Uchenna, as COVID-19 continues its disruptive impact on businesses globally, foreign investors are not eyeing the bourse for new investments, resisting reduced valuations on some of Nigeria’s biggest companies.

He noted that they were also concerned that a shortage of dollars may restrict their ability to make any profits.

Uchenna said, “At the macro level, COVID-19 is partly to blame for the sharp drop in crude oil prices. The other culprit is the price war between Russia and Saudi Arabia. This has led to depletion of external reserves thereby weakening the ability of the central bank to defend the value of the naira.”

He explained that the recent upward adjustment of the exchange rate readily comes to mind as it resulted in a drop in statutory allocations from federation account to the three tiers of government.

A professor of Capital Market, Dr. Uche Uwaleke, advised state governments to issue COVID-19 or pandemic bonds which should be deployed to expand medical facilities and adequately prepare against a future occurrence.

Though the capital market lost N1.71tn or 12.54 per cent as market capitalisation from N13.657tn on February 28 to N11.945tn at the close of trading on April 20, Uwaleke expressed optimism that the exchange would recover from in 2021.

A data from the FMDQ OTC Securities Exchange, a Lagos-based platform that oversees foreign-exchange trading, revealed that foreign investors’ purchases of Nigerian stocks and bonds dropped to $266m in March and the first half of April 2020, the lowest since the investors’ and exporters’ foreign exchange window was opened in 2017.

Even with the gloom of dwindling stock exchange, the Chief Executive Officer, NSE, Oscar Onyema, told investors that the bulls would return to the market.

Onyema assured investors of the unwavering commitment of the NSE to solidify its leadership position as Africa’s foremost securities exchange.

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