Prof. Uche Uwaleke of Nasarawa State University Keffi, has expressed optimism that the Nigerian stock market will experience a rebound in the third quarter of 2019, urging investors to take advantage of low equities pricing.
Uwaleke made this known on Wednesday in Lagos, at the Capital Market Correspondents Association of Nigeria (CAMCAN) quarterly forum with the theme: ‘Stock Market in the first quarter of 2019 and post-election prospects”.
He said that investors embrace the stock market by taking advantage of the prevailing low price of equities in order to partake in the opportunities of market reversal that would commence by end of second quarter.
Uwaleke, now a research fellow at the Securities and Exchange Commission (SEC), said “unfolding internal and external factors such as swearing of President Muhammadu Buhari for second term and early constitution of his cabinet would impact the equities positively.
“The Nigerian market which ranked as the world’s third most rewarding market in 2017, ranking only after Turkey and Argentina, and became bearish subsequently, is poised to enter into another bullish era by third quarter,” he said.
He said that lowering Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC), increase in minimum wage, increase in oil price and continued stability in Foreign Exchange (FX) would impact on the market.
Uwaleke added that continued moderation in inflation, steady growth in Nigeria’s Gross Domestic Product (GDP), early signing of 2019 budget and implementation, improved growth in non oil sector among others, would affect the market positively.
He said the planned introduction of derivative instruments in the market by SEC which preparations had reached advanced stage at both SEC and the Nigerian Stock Exchange (NSE), would help both foreign and indigenous 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.
He said that the Cenral Bank of Nigeria’s (CBN) MPC triggered the market supportive move in March, by bringing down MPR by 50bps, after 33 successive months to 13.50 per cent from 14 per cent.
According to Uwaleke, 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.
According to him, the expected listing on the NSE by MTN, 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 added that Nigerian Pension Commission (PENCOM)’s six multi-fold structure rules was expected to boost PENCOM’s investment in the equity market.
The research fellow said the margin lending rule presently being worked on by SEC and efforts at deepening domestic investors’ participation in the market were some of the measures expected to deliver early market reversal in the third quarter.
Speaking on how minimum wage increase would 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 the new minimum wage will rather boost aggregate demand, driven by greater number of people having more disposable income and also money to save.”
He, however, disagreed that there would be another economic recession in Nigeria, saying thatnthe factors that contributed to the recession in 2016, were presently none existent.
“Crude oil price is not bad today, external reserve is healthy, inflation rate at 11 per cent is healthy.” he said.
Uwaleke listed crude oil price, declining trend of yield in the U.S., easing Brexit tension and easing U.S.-China trade tension as some external factors that would likely drive market reversal in the third quarter.
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 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 attributed the Q1 2019 market decline to be partly caused by rebalancing of portfolio, movement form equities to fixed income, herding behavious of investors, flight for safety by foreign investors and panic by investors, among others.