Prof Uwaleke Harps On Nigeria Equity Market Revamp Post Pre-Election 2022

.. request investors shield headwinds with securities with solid fundamentals

… as well as ensure a well-diversified portfolio

Against expected dip in the value of equities in the Nigeria bourse in Q2, Prof. Uche Uwaleke, has said that every pre-election year in the domestic economy has always rub on negatively on the stock market.

Although the Nigerian All Share Index closed the first half of 2022 with a gain of about 21.17% year to date (YTD) making it one of the best-performing stock markets in the world.

The Nigerian equity market on Monday extended a negative position as it recorded loses in some high capitalised stocks such as MTN Nigeria and Guranty Trust Holding Company GTCO, amongst others.

This transaction drag the market capitalisation to decrease by N312.44 billion to close at N27.718 trillion from N28.031 trillion it stood on Friday, representing 1.11per cent decrease. All this market watchers attributed to the pre-election period.

Speaking, Tuesday, via a webinar at the one-day monthly forum organized by the Financial Correspondence Association of Nigeria (FICAN), Prof Uwaleke said all hope is not lost, as Nigerian equities market, based on trend analysis always experience drawbacks at every pre-election, especially during second quarter of the year.

Prof Uche Uwaleke

Uwaleke, a Professor of Capital Market, who addressed the financial press on ‘Impact of Electioneering on Fixed Income and Equity Market in Nigeria’ said no investor want a negative return on investment, but that high inflation is not in the best interest of the equities market.


According to him, political uncertainty breath low interest in the capital market, saying there is bound to be a sell down in shares, despite that in recent times the market has huge local as against foreign investors in the domestic market.

“Stock returns have been on a downward trend for all penultimate election years since 2006.The poor performance of the stock market in 2014 despite relatively strong GDP growth rate (including strong crude oil prices), and single digit inflation. May not be unconnected with heightened political tension that characterized electioneering in H2 2014.Low GDP growth rate (1.92%) and double-digit inflation rate (12.09%) in 2018 resulted in stagflation which may have contributed to the negative returns in 2018.

“Bond Yields tend to be higher in second half of pre-election years. This may be due to: Increased demand for money occasioned by election spending increased borrowing by the government to prosecute the election. High inflation rates. High country risks in the case of Eurobonds.

“Again, If previous penultimate election years’ performance is any guide, what do we expect in H2 2022? Rising inflation rate. The impact of CBN’s tight monetary policy will be insignificant in taming inflationary pressure. Rising Exchange Rates due in part to exit of foreign investors as well as increased demand for forex by Politicians. Rising yields in the fixed income market. DMO Q3 Calendar shows bonds to be sold at coupon rates of between 12.5% and 13.5%. Cost of debt servicing on the part of government to increase.Bearish stock market and negative real rate of return. Portfolio rebalancing away from equities to fixed income securities

“Penultimate election years in Nigeria are characterized by tension and uncertainties ahead of the general elections with adverse consequences for the economy and the equities market in particular. The impact of electioneering on equity and fixed income markets is mostly felt in H2 of penultimate election year.This period has been associated with the exit of foreign investors. Domestic Investors’ sentiment is usually weak as they seek to reduce their market exposure when elections draw closer.The intensity of the impact is usually a function of the degree of political tension and uncertainty generated by political activities.

Speaking on when investors are to key into the market, Prof Uwaleke, said recent evidence from the stock market supports a buy-in-September-Sell in January strategy, ceteris paribus.

“While the ASI depreciated in September for all penultimate election years, it appreciated in January for all election years except 2015.The outlier, January 2015, was the election year that ushered in the present administration characterized by high tension and uncertainty. Compounded by the fall in international crude oil price and the rumoured break-up prediction of Nigeria in 2015 by the United States National Intelligence Council. The bearish run experienced in the stock market in H2 of 2014 (largely on account of the tension) had lingered into January 2015.

He added that, “clearly H2 of any pre-election year is not for risk-averse investors. During electioneering period, Investors are advised to take a longer term perspective as H2 of pre-election year is a good time to identify and take positons in undervalued stocks especially in dividend aristocrats.To identify mispriced stocks, the application of ‘Tobin-Q’ or ‘Kaldor’s V’ and Price/Earnings ratios is advised.Ultimately, the best strategy to shield the headwinds is to stay with securities that have solid fundamentals as well as ensure a well-diversified portfolio of investments particularly during electioneering periods.

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