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By Chukwumah Kelechukwu
Despite sharp plunge in first quarter (Q1) performance of stocks at the Nigerian Stock Exchange, a financial market expert and university Don at the Nasarawa State University, Keffi, Professor Uche Joe Uwaleke predicted a market rebound in the third quarter (Q3) of the year on a combination of five major factors.
Uwaleke, a Professor of Finance & Capital Market, and Head of Banking and Finance Department at the school, said that early constitution of cabinet members of re-elected president Muhammadu Buhari, CBN’s lowering of interest rate to about 11 percent, minimum wage increase, sustained rise in oil price and stability in foreign exchange (FX) are factors going to jump-start a new cycle of profitable trades in stocks beginning from Q3.
Uwaleke who was a guest lecturer at the quarterly forum of the Capital Market Correspondents Association of Nigeria (CAMCAN), Wednesday in Lagos, pointed out that the market price earning (PE) ratio ranks lower than PE ratio index of most global investment firms, a fact that has created room for market rebound.
Speaking on the theme ‘Stock Market in the First Quarter 2019 and Post-Election Prospects,” the academic who doubles as president of the Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, stated that continued moderation in inflation, steady growth in Nigeria’s Gross Domestic Product (GDP), improved growth in non oil sector amongst others, and early signing, as well as implementation of the budget, would impact positively on the market.
He urged equity investors to take advantage of low stocks prices to position ahead of the anticipated rebound, saying that planned introduction of derivative instruments by the Securities and Exchange Commission (SEC) would help investors to hedge their investments.
“The NSE is really waiting for SEC to finalise the rule for the derivatives to be introduced, it will give investors room to hedge risks”, Uwaleke said.
Other potential drivers of the anticipated rebound, Uwaleke listed, include policy initiatives by regulators and some unfolding external developments in developed economies of Europe and America.
“Crude oil price today is not bad, external reserve is healthy, inflation rate at about 11 percent is healthy; and 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 will also impact Nigeria’s market positively,” Uwaleke submitted.
He precisely pointed out that the six-multifold structure rule being introduced by the National Pension Commission (PENCOM) to increase the Commission’s investment in 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 going to kick start market rebound.
On how the minimum wage will impact the market, he said “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.”
According to him, CBN’s recent reduction in interest rate by 50bps, after 33 successive months, to 13.50 per cent from 14 per cent, has triggered portfolio adjustments, adding that he sees prospects of 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.
He added that the expected listing of MTN Nigeria on the NSE, is expected to boost market liquidity, diversify offerings as the company will become the second most capitalised company in the market, after Dangote Cement Plc.
He attributed Q1 2019 market decline partly to portfolio rebalancing, a movement from equities to fixed income, bandwagon attitude of investors, flight for safety by foreign investors, panic by investors, among others.
He also ruled out likelihood another economic recession in Nigeria, saying that the factors that contributed to the recession in 2016, no longer exist.
BADEJO ADEMUYIWA has 23 years experience as a Finance Writer, specialising in Insurance and Investigative Reporting.
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