Buharinomics and the stock market: now the storm is over -By Uchenna Uwalek

Uchenna Uwalek

For stakeholders in the Nigerian stock market, the one year anniversary of President Muhammadu Buhari provides an opportunity to review the market performance in the last one year and attempt a projection into the future against the backdrop of the economic policies of this administration.

The very first “wind of change” was felt in the stock market immediately after the peaceful conduct of the presidential election of 2015. Following the declaration of Buhari as the winner on March 31, 2015 and the display of statesmanship by the then President Goodluck Jonathan who congratulated his opponent at the polls even before the official announcement, the Nigerian Stock Exchange  All Share Index had posted 10 straight days of gain in what was rightly dubbed the “Bull-hari effect.” The impact was short-lived though as the bullish sentiment waned soon after Buhari was sworn in as President. In fact, the stock market lost over N1.7tn within Buhari’s one year in office with market capitalisation for equities dipping from N11.66tn on Thursday, May 28, 2015 to N9.93tn on Friday, May 27, 2016. The All Share Index equally dropped from 34,310.37 points to 28,902.25 points over the same period.

The performance of the stock market in the last one year correlates with the downturn in macroeconomic indicators. According to the National Bureau of Statistics latest figures, the nation’s Gross Domestic Product contracted by 0.36 per cent from a year earlier while headline inflation, which began an upward movement in the last one year rose to 13.72 per cent in April 2016, as against the 8.7 per cent in May 2015. Within the same period, massive job losses was recorded leading to an increase in the unemployment rate to 12.1 per cent in the first quarter of 2016 compared to 8.2 per cent in the second quarter of 2015. Several reasons have been adduced for the country’s poor economic performance since May 2015. These include forex scarcity on account of the drastic fall in oil price, electricity and fuel shortages, capital controls by the Central Bank of Nigeria, delay in the appointment of ministers by the President as well as the controversies surrounding the passage and signing of the 2016 budget. Now that the march into the next 365 days has begun, what impact will Buharinomics have on the performance of the stock market?

In the coming months, investors in the stock market are likely going to exhibit positive sentiments as several factors will combine to shore up confidence and bring about a rebound in stock prices. A major reason for this optimism is the expansionary impact which the N6.06tn 2016 budget is expected to make on the economy. The implementation of the capital component will no doubt stimulate the economy and enhance employment generation capacity for the productive sector. The huge spending on power and other capital projects, complemented by the various intervention schemes of the CBN especially in agriculture, infrastructure and Small and Medium Enterprises involving single-digit lending to the real sector, is expected to have a positive impact on the bottom-line of quoted companies. The mutual fund industry will likely experience a fillip following a successful implementation of the social welfare schemes contained in the 2016 budget.

Without doubt, the success of the 2016 budget is dependent on meeting revenue projections. In this regard, it is gratifying to note that the international crude oil price will most probably trade, on the average, in excess of the budget reference price of $38 per barrel. Data by the US Energy Information Administration show that the drop in US output, combined with disruptions in Canada and Latin America, are contributing to an erosion of global oversupply and the current spike in oil price in recent times. However, if the budget production target of 2.2 million barrels per day must be met, the government should make genuine effort to engage with the Niger Delta Avengers and other militants in the Niger Delta region to check disruptions in oil production facilities.

Expectedly, the benefits of the President’s numerous trips abroad in the last one year will begin to manifest in the coming months especially with respect to flow of foreign investments. During Buhari’s visit to China for instance, Nigeria reportedly signed a number of agreements with China aimed at fast-tracking infrastructure development in the country. In particular, the currency deal is expected to strengthen the naira with Nigerian traders, who import mainly from China, concluding their transactions in the Chinese yuan instead of the US dollar.

The introduction of confidence-building measures and strengthening of oversight function by the capital market regulatory authorities will continue to rub off positively on the stock market. In recent time, the Securities and Exchange Commission has undertaken a number of initiatives to boost investors’ confidence notable among which are the establishment of the National Investors Protection Fund meant to cushion the adverse effect of losses suffered in the capital market; the e-dividend policy designed to minimise cases of unclaimed dividend; the Direct Cash Settlement scheme which ensures that investors receive their money directly whenever securities are sold, the Corporate Governance scorecard for companies listed on the Nigerian Stock Exchange  and the recapitalisation of capital market operators which would go a long way in curbing sharp practices in the market. The NSE has also put in place minimum operating standards  for market operators and only recently its quotations committee delisted eight companies from the NSE daily official list for violating listing rules and failing to file their quarterly and annual financial reports. These measures send the right signals to the investing public with regard to rules enforcement and market discipline.

Perhaps, the strongest influence on foreign portfolio investments in Nigeria going forward are the recent monetary and fiscal policies’ shifts which tend towards a free market economy such as the adoption of a more flexible exchange rate policy as well as the deregulation of the downstream petroleum sector. These measures are expected to drive another “bullhari effect” on the stock market in the months ahead.

Other factors that will impact favourably on the stock market include the government anti-corruption stance and implementation of public financial management reforms designed to reduce waste in government as well as the successes recorded in the area of fighting terrorism. These efforts create a positive image for Nigeria in the international arena and by so doing enhance the investment climate in the country. From all indications, the stock market will experience an upward trend in the months ahead. This time round, God willing, the “bullhari effect” will be long-lasting. Indeed, for investors in the Nigerian stock market, the storm is now over.

Uwaleke is a Chartered Stockbroker and an Associate Professor of Finance at Nasarawa State University Keffi.