CBN Predicts Stability in FX as External Reserves Hit $43bn

Despite concerns of political risk, the stock market has continued to display resilience as investors recorded gain of N712 billion in seven days of trading.

The market, which declined in 2018 due to negative investor sentiment ahead of the general election and capital flow reversals, had ended January 2019 with a negative performance.

However, renewed demand due to investors’ moves to take advantage of low prices led to a gain of N712 billion in seven days. Specifically, the market capitalisation, which stood at N11.394 trillion at the end of January, rose to N12.106 trillion on Tuesday. This translated to a gain of 6.2%

The market rally coming few days to the presidential elections, according to experts indicates that investors have ignored the election ‘noise’ to take advantage of low prices to increase their stakes in the market.

Nigerian stocks are significantly lowly priced after a bout of persistent decline that began in February 2018 and lasted to the end of January 2019. As at the end of January 2019, the Nigerian stock market main gauge, the Nigerian Stock Exchange (NSE) All-Share Index, was 2.7% negative, showing that many stocks were trading below their year’s opening values. But the South Africa market was 2.6 per cent positive, Kenya market 7.0% positive and Ghana’s market was 2.6% positive also.

The gains posted in the first days of February may not, however, have come as a surprise as some analysts have expected it. Analysts at FSDH Research had said political considerations, rising global yields ad increased yields on fixed income securities in Nigeria led to a reallocation of portfolio away from equities market, hence the decline in January.

But looking into February, FSDH Research they expected some positive performance.

“We expect savvy investors to take strategic positions in the months leading to expected recovery in second quarter of 2019. Despite the overall decline in January, we have seen pockets of this positioning over the months and expect to see further examples in February,” they said.

While the stock market comes with volatilities, investors stand to record significant gains provided they understand the market and have good investment objectives.

According to the Group Chief Executive Officer of United Capital Plc, Mr. Peter Ashade, volatility is part of the capital market, saying investors should stick to certain factors to succeed in the market.

“First, an investor who understands that the market could go up and down is best suited to make calculated decisions towards meeting investment goals. The second is having a clear objective for investing in the market. Some may invest to earn revenue, and others for capital appreciation.

“The third is to tame greed. Sticking to a clear investment objective is an effective principle for savvy investors. For instance, you can say if I get 10%, I think I have made my day. I should leave. Then you discover that the share price of your investment goes up and gets to that 10% goal. If you still see that the markets rally beyond that, and you decide to wait a little, then that’s greed setting in. ” In waiting a little, the market could be up 11% to 12% and before you know what is going on, you are down seven per cent. So greed also needs to be addressed in making investment decisions. In summary, you must understand the market you are playing in, stick to a clear objective for investing, and ensure that you are not greedy in terms of your investment outlook,” he said.

According to FXTM’s Research Analyst, Lukman Otunuga, “with domestic investors seen bargain hunting as the elections loom, the All Share Index is seen pushing higher. While the naira continues to witness stability against the dollar, volatility could be in the cards depending on the election outcome. A perceived market-friendly result will be positive for the local currency.”