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Investors’ over reaction to forex policy costs them N749bn

By Emeka Anaeto, Economy Editor

LAGOS — Investors in the stock market appeared to have burnt their fingers with the bullish sentiment spurred by the flexible foreign exchange regime as a full reversal of the market gains came last weekend with a total loss of N749 billion.

The market has been bearish after the withdrawal of foreign investors over the exchange control policy of the Central Bank of Nigeria, CBN, and the apex bank was forced to change the policy after more than a year of adverse consequences across all segments of the financial markets.

Investors, had consequently rushed to take positions on the stocks expecting a massive rebound with foreign investors’ inflow, a development which had pushed market capitalization to N10.249 trillion within two weeks of  announcement of the new policy.

However, the market sentiment began to wane afterward as it was becoming clear that the foreign investors are not yet eager to return, a development which brought down the market capitalization to N9.5 trillion last weekend.

Returns on investment year-to-date, YTD, was also thrown back into negative of -3.56 per cent last weekend. The initial bullish sentiment had pulled it up from a negative region to 4.04 per cent in the second week of the new forex regime.

Managing Director of Financial Derivatives Company, a Lagos-based financial advisory and economic research company, Bismarck Rewane, in a presentation at Lagos Business School, had described the bullish behaviour of the investors upon the policy change as “irrational exuberance,” adding that the subsequent turnover decline of 27.4 per cent a few days later was a giveaway, indicating that the bullish sentiment was “speculators gimmick.”

Commenting on the sentiment reversal, investment analysts at Afrinvest West Africa, a Lagos-based investment house, said: “The euphoria which came with the re-introduction of some flexibility in the FX market seems to be waning

“Some overhanging concerns about the new policy, which had left investors with a lot to desire, coupled with profit taking in counters that gained significantly, drove the negative performance.”

They added that the performance of the market was indicative of the fact that investors might have overreacted to the recent FX.


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