A Professor of Capital Market, Prof. Uche Uwaleke, has advised investors interested in the equities market to buy stocks in September and sell in January 2023 to reduce the impact of electioneering activities on investment.
Professor Uwaleke gave the advice at a capacity-building programme organised by the Finance Correspondents Association of Nigeria (FICAN) on Tuesday.
The forum held virtually has as its theme; “Impact of Electioneering on Fixed Income and Equities Markets in Nigeria’’.
According to Prof Uwaleke, the stock market had always experienced negative pressure every pre-election year in the domestic market.
He explained that while the All-Share Index (ASI) depreciated in September for all penultimate election years, it appreciated in January for all election years, except in 2015.
“The outlier, January 2015, was the election year that ushered in the present administration, characterised 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 the second half (H2) of 2014 (largely on account of the tension) had lingered into January 2015,’’ he said.
Uwaleke, however, cautioned that the second half of any pre-election year is not for risk-averse investors.
He advised investors to take a longer-term perspective during the electioneering period, saying, “second half of pre-election year is a good time to identify and take positions in undervalued stocks, especially in dividend aristocrats.”
He said, “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’’.
He, however, said that there was still hope for the Nigerian equities market based on trend analysis which always experience drawbacks at every pre-election, particularly during the second quarter of the year.
The economist said no investor wanted a negative return on investment, adding that high inflation was not in the best interest of the equities market.
Uwaleke said that political uncertainty breath low interest in the capital market as a sell down in shares was unavoidable despite vast local 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 characterised electioneering in second half 2014.
“Low GDP growth rate of 1.92 per cent and double-digit inflation rate of 12.09 per cent 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 and increased borrowing by the government to prosecute the election, high inflation rates, and high country risks in the case of Eurobond.
“Again, if previous penultimate election years’ performance was any guide, we should be expecting in second half 2022, rising inflation rate.
“Also, the impact of CBN’s tight monetary policy will be insignificant in taming inflationary pressure.
“Penultimate election years in Nigeria are characterised by tension and uncertainties ahead of the general elections with adverse consequences for the economy and the equities market in particular’’