… Govt needs to accelerate policy implementation to reposition economy- Operators
By Peter Egwuatu & Nkiruka Nnorom
Despite the drop in Gross Domestic Product, GDP by -6.1 percent yesterday, the stock market recorded marginal positive performance as the Nigerian Stock Exchange, NSE All Share Index, ASI rose by three bases points, bps to close at 25,229.12 points.
Consequently, market capitalisation appreciated to N13.2trillion as investors gained N3.8 billion while Year to Date, YtD loss eased to -6.0%. Activity level improved as volume and value traded increased 58.4% and 34.6% to 251.2million units and N2.4billion respectively.
Meanwhile, stock market operators have emphasized that the drop in GDP would not significantly affect stock market performance as the contraction in the economy had already being factored in the market even as they advocate the need for government to accelerate policy implementation to reposition the economy.
Reacting to market performance, Mr. Ayodeji Ebu, Managing Director/CEO, Afrinvest Securities, said that the contraction in the GDP did not come as a surprise and so, would not have any negative impact on the stock market in the near term.
He argued that the contraction has long been expected and investors have priced the effect into their investment. He insisted that the financial performance of companies quoted in the stock market would determine how the market fares in the near term.
He, however, said that the government must, as a matter of urgency, accelerate policy implementation in the power, energy and other key sectors of the economy in order to pull the economy out of the negative zone or forestall further dive to the red zone. He said: “This has all been anticipated; all the leading indicators have shown that the economy would contract. What we saw today was just to affirm it with data. So, we don’t see any major implications in the near term in the stock market.
“What will drive the stock market will be, mainly, the financials. There is, really, no surprise. Assuming there is a major surprise, we would have seen a major shock. The news, as you can see, came out at 8:30 in the morning and the market still closed up today at four basis point.
On the way forward, he said: “Government needs to increase the pace of implementation of policies and think of how to attract foreign investors into the economy. The government needs to expedite action on passage of PIB Bill, and improve the power sector so that they will also impact on the economy.
“So, we just need to accelerate implementation of the policies so that though we expect the third quarter to still be negative, but not as much as this. This will become a concern if at the end of the fourth quarter (Q4’20) of the year, we are still very deep into recession.”
In the same vein, Managing Director/CEO, APT Securities & Funds Limited, Mallam Garba Kurfi said: “ The GDP contraction is beyond the expectations of -5% . It shows that the economy is seriously bleeding more than what was predicted.
“However, when compared with UK and Japan which recently declared double digits lost for their Q2 GDP, it shows that ours is not hopeless. But we need a strong fiscal and monetary policy that would reduce the impact to the economy in general.
“As for the impact on the stock market, we are still hopeful the market may restore marginal impact because of the inflation that may promote the price of stocks to be better than where the market price was early in the year as we witnessed in the last two weeks stock close on marginal gains.
The advice to investors is for them to be cautious and invest in stocks with good fundamentals and prospect in declaring dividend.”
Commenting, Sola Oni, Chartered stockbroker and CEO, Sofunix Investment and Communications said: “There is positive relationship between the Gross Domestic Product (GDP) and the stock market. When the GDP increases, it connotes more spending in the economy and this spurs demand for financial assets on the stock market with likely emergence of bullish trend. But as a corollary, declining GDP is an indication of less spending. Many investors may embark on massive sell off to meet up their obligations and the trend may depress market, a euphemism for volatility.
“The declining news of Nigeria’s GDP is a signal to investors to seek professional advice from stockbrokers as they are better positioned to offer investment advice. Volatility is a double edged sword. While it can elicit share diminution, it will also enable investors to purchase shares of companies with strong fundamentals at give away prices.”