Analysis: Is Buhari’s announcement of re-election bid responsible for NSE’s N150bn loss?
Trading on the Nigerian Stock Exchange (NSE) reportedly dropped to a three-month low shortly after President Muhammadu Buhari said he would seek re-election in 2019, ending months of speculation about whether or not he will re-contest.
Legit.ng gathered that the Nigerian stocks ended in the red on Monday, April 9, with large companies ending up as top losers.
Unilever, Lafarge, Dangote Cement, Guinness and Dangote Flour were the top five losers on the market.
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Market capitalisation, which opened at N14.753 trillion, shed N150 billion to close at N14.603 trillion.
Also, the All-Share Index dipped by 411.98 points to close at 40,429.18 compared with 40,841.14 posted on Friday, April 6.
The last time All-Share Index was in this region was on January 9 when it stood at 40,362.97 points.
Unilever recorded the biggest loss to lead the losers’ table, shedding N4.80 to close at N55 per share.
Lafarge Africa followed with a loss of N3.20 to close at N41 in spite of N1.50 final dividend declared for the financial year ended December 31, 2017.
Dangote Cement shed N2.90 to close at N252, while Guinness depreciated by N1 to close at N103.
Dangote Flour also lost 65k to close at N13.15 per share.
According to the Cable, towards the end of 2017 and in January 2018, the NSE was performing impressively, breaking previously set records and getting ranked amongst the top five stock exchanges in the world.
By the end of the first quarter, all the five indices had, however, dropped from their record highs with the industrial goods index taking the biggest hit.
The question, thus, is: what is responsible for this loss? Is the loss due to poor financial results or is it politically motivated?
According to the News Agency of Nigeria (NAN), stock analysts attribute the loss to “…to sell-off and profit taking on high cap stocks that suffered losses after their share prices were adjusted for dividend declared and some companies that declared unimpressive earnings.”
Nevertheless, some attribute the NSE loss to President Buhari’s announcement of 2019 re-election bid.
How accurate is this speculation? Is it a valid assumption or just a political sentiment?
The fact is that sometimes, markets react to specific political events. That is, the political atmosphere of a country can affect investment decisions as it is also seen as a sign of whether the investors trust the government in power to keep the economy stable.
For instance, after the terrorist attacks in Barcelona, Spain in August 2017, the Dow Jones Industrial Average (a stock market index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market) dropped 275 points.
Nevertheless, despite all the troubling news about the attack, the Dow is still up about 13% this year, Elizabeth Nicholas said in a 2017 article titled “How Do Political Conditions Affect the Stock Market?”
How can this be? Supporters of President Donald Trump attribute the jump to his business-friendly policies while the critics say others factors are at play.
So, who is right? Donald Trump supporters or his critics?
The short answer is that there’s a complicated relationship between political conditions and the stock market.
There have been times that politics seem to have a direct impact on the markets and there are times when it goes the other way.
According to Karyn Cavanaugh, the senior vice president of Voya Investment Management (quoted in the article cited above): “Politics have very little effect on the stock market other than short-term knee-jerk reactions.”
For instance, Cavanaugh explained that many investors were worried that both Brexit and the 2016 US presidential election may adversely affect the US stock market. The two events, however, failed to result in a sustained loss in the market.
Conclusion
There are many factors that could have led to the NSE’s loss –stock analysts quoted by NAN already cited a possible factor.
While it is true that the political conditions of a country can have impacts in the stock market, there are other many factors that could affect the market.
Thus, holding President Buhari’s announcement of 2019 re-election bid as the sole reason for the NSE’s loss is not only erroneous but misleading.
In an earlier report, Legit.ng highlights seven major reasons why President Buhari may be successfully re-elected in 2019.
One of the listed reasons is the president's focus on anti- Boko Haram operations. The promise to conquer the Boko Haram insurgency was one of the cardinal reasons why President Buhari was elected in 2015.
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Three years into his presidency, many will argue that the president is winning the anti-insurgency war.
Though the insurgency has not been completely defeated, the insurgents have been displaced and most of the territories they took over have been regained by the Nigerian Army.
Also, the president has secured the release of some of the Chibok girls abducted by the Boko Haram and he promised that the remaining girls, and others in Boko Haram’s captivity, will regain their freedom soon.
Despite the controversies that surrounded the abduction and release of the Dapchi schoolgirls, many still commended the president’s prompt response and release of the girls.
Should President Buhari seek re-election in 2019? (Nigerian Street Interview) - on Legit.ng TV
Source: Legit.ng
