By Nkiruka Nnorom
This week and next week are the most critical for stock investment decisions and you won’t have it like this again until 2023. It is an investment situation tied to political season of a general election.
The stock prices may still be subdued below real market value due to the political fever and the associated uncertainties in the next 10 trading days, though some speculative movements may happen, but not a major one.
If (and this is a big ‘if’) all go well in the election happening next week Saturday, then by Monday the stock market would be on bullish steroid, recording massive price gains which will be sustained almost to the point of recouping fully its nearly one year losses within few weeks if not days; instant millionaires and billionaires would be made especially with those investing this week that the stock prices are at rock-bottom.
But if the election (before, during and after the pools) records major crises, then reverse would be the case; an extended losses.
So this is the big investment dilemma of this time.
Traditionally, every equities market is cyclical in nature. It is usually characterised by upward and downward movements but at each of the cycles, discerning investors seize the opportunity to make profit in the short term and withdraw before the tide turns against them.
The Nigeria stock market is not spared in this cyclical movement. The market, for instance, was bearish for most part of 2018 resulting in loss of about N1.9 trillion by the end of the year. The market again started the year (2019) in a bearish note, losing N676 billion or 5.58 percent in the first six days of the year, but the trend was reversed in the subsequent weeks with market rising by 6.5 percent before going down again in the last two trading days of January, 2019.
Ultimately, the stock market fluctuated all through last month.
Despite the bearish nature of the market and apprehension over the upcoming presidential election this month, top stockbroking firms in the capital market are advising investors to take position ahead of the election, saying that opportunity exists in the market for investors to make money.
The managing director of a top stockbroking firm who spoke on condition of anonymity said: “That the election is coming up does not mean that there are no opportunities in the market. I think it is a good time to buy. So, you don’t have to wait until everybody is coming in before you also come in because at that time, you might not get a fair valuation. For me, there is, indeed, an opportunity in the market and investors should take position now.”
She explained that the stock rally that was seen for almost three weeks last month was driven by a mix of foreign and a few local institutional investors, who took opportunity of the attractive valuation to make profit.
“The market became very attractive due to the protracted bearish run in 2018 which dovetailed into the new year, which is the reason for the rally we saw for most part of January. So, the rally was just a result of attractive valuation,” she said.
Speaking in the same vein, Johnson Chukwu, Managing Director/CEO, Cowry Asset Management, advised investors to buy, saying: “There is strong buy opportunity in the market and I think for those who have strong risk appetite, it is the time to get in and make gains in the short term. At this point, prices are so depressed such that those who go in should be able to make some reasonable profit after the election. Investors should take position ahead of the election because after the election, you are going to see recovery and depending on the direction the election goes, we may actually see end of election euphoria that could lead to strong market rally.”
On the rally witnessed during the month, he said: “It was basically what is called bargain hunting opportunity. After the market has lost close to seven percent in the first few days of the year, people saw opportunity in those stocks and they went in to buy. The rally was basically a window for people to jump into the market.
He explained that the stock rally was driven by a mix of domestic institutional investors and a few foreign portfolio investors.
Retail investors divided on buy, hold position
However, domestic retail investors are divided in their position. Some believe that it is a good time to buy while others said it is more advisable to adopt a wait-and-see attitude until the end of the election season.
Adebayo Adeleke, former general secretary of the Independent Shareholders Association, ISAN, said that the election is a passing phase and therefore presents the best opportunity “to buy shares as most companies’ shares are trading at a bargain. This is the best market time for intelligent investor.”
Moses Igbrude, General Secretary, ISAN, said: “Yes, the market at the present state is in its lowest ebb and this is the right time we local investors should invest in the market because once the elections are over, those investors who ran away will come back when stability returns to the country.”
He said that most companies listed on the exchange are under-valued, adding that prevailing prices are not reflective of the true picture of the market. “Once the uncertainty caused by the elections is over, the market will gradually bounce back to normal. So, I have no fear at all about the market because I am a long term investor,” Igbrude said.
Naira stable at N360.5 to dollar at parallel market
However, Patrick Ajudua, National Chairman, New Dimension Shareholders Association, NDSA, said: “I don’t think it’s advisable to stake my money to the capital market now considering the upcoming election. There is need to ascertain the risk associated with pre-election year vis-a-vis the political, economic and policy uncertainty.
“Though it is generally believed that foreign investors will withdraw from the market during this period thereby making prices to fall, the need to adopt a wait-and-see approach is highly recommended in order to know the direction of the market after the election. The economic policy of the government that will come into power will determine the way forward.”
Eric Akinduro, chairman, Ibadan Zone Shareholders Association, said that any investment at this electioneering period should be done with caution as companies’ performance might not be the main driver of the market.
”Any investor that wants to invest now should use idle fund that could be left for a long period and not fund from loan.
“I will be comfortable to invest in companies with good fundamentals and high dividend yield. We have some companies that are cheap now which can record capital appreciation after the election. This election is not the first in this country and that has been the usual occurrence,” he added.
Investors’ speak: Mutual funds are good and less risky