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Investor confidence dips further after Sanusi’s suspension

By BusinessNews Staff on February 25, 2014

The suspension of Central Bank of Nigeria Governor, Mallam Lamido Sanusi, has created more uncertainty for investors and it will take a while before market stability is achieved, analysts have said.

A statement on the decision by the Special Adviser to the President on Media and Publicity, Dr. Reuben Abati, had said on Thursday that Sanusi was suspended based on the discovery by the President that his tenure as CBN governor had been characterised by acts of financial recklessness and misconduct.

A Deputy Governor, CBN, Dr. Sarah Alade was named as acting governor, while the Managing Director, Zenith Bank Plc, Mr. Godwin Emefiele, was nominated by President Goodluck Jonathan as Sanusi’s successor.

However, analysts said the move gave investors, who were already battling a number of negative developments, more cause for concern.

Following an impressive year in which the Nigerian Stock Exchange Index recorded a 47 per cent return, the sentiments of investors had been positive going into 2014.

Also, analysts including the management of the Exchange had said the outlook for the year was largely positive.

However, the decision of the United States Federal Reserve to taper its quantitative easing policy by $10bn per month starting January 2014 sparked off sell-offs in the emerging markets. The sell-offs went on to affect equities globally as it dragged European and US stocks down.

The impact of the sell-offs in Nigeria, according to analysts was worsened by the decision of the CBN to increase Cash Reserve Requirement on public sector funds from 50 per cent to 75 per cent in January, less than a year after it was increased to 50 per cent from 12 per cent.

This was because several investors, believing that banks would be less profitable, dumped bank stocks for others, dragging the market further down.

Just as the emerging market sell-off was easing and the market was beginning to move towards stability, the news of the change at CBN reversed a three-day rally witnessed in the first three days of trading last week.

Analysts at Vetiva Capital Investment Limited captured the direction of activities last week.

They said in a report on Friday, “Momentum picked up at week open as the NSE All Share Index halted a five-session losing streak. Recovery was seen across key sectors, driven by renewed interest in blue chip stock at bargain prices. Although recovery was broad based, focus was mainly on Financial Services.

“However, market sentiment reversed on Thursday, following the suspension of the Central Bank of Nigeria Governor, Lamido Sanusi by President Goodluck Jonathan and subsequent nomination of Zenith Bank CEO, Godwin Emefiele as the new CBN Governor. The ASI retreated 147bps and 134bps on Thursday and Friday in a reaction to the news, rounding up with a 1.22 per cent week-on-week loss.”

The Chief Executive Officer, Lambert Trust and Investment Securities Limited, Mr. David Adonri, told our correspondent following the announcement that the negative reaction was because of fear and uncertainty as well as the perception by foreign investors that Sanusi was an anti-corruption crusader.

He said, “The perception that most foreign investors, and people outside this country have is that Sanusi has acted independently in pursuing monetary policies that have successfully led to macroeconomic stability in Nigeria, especially price stability. He is also perceived as an anti-corruption crusader.

“So, if such a person, whose contribution, has been largely positive and beneficial to the economy, is now being penalised, there reaction, therefore, will be that of fear and caution. That is why we are having a negative reaction in both in the foreign exchange market and the equities market.”

In their weekly report entitled, ‘Uncertainties extend market downturn,’ analysts at Meristem Securities Limited confirmed that it had been a bumpy ride for the equities market this year.

They said, “The Nigerian Bourse has witnessed several bumps so far this year; the culprits include monetary policy pronouncements especially on CRR, political quagmire and the recent suspension of the CBN governor, which have stirred up investor’s panic.”

They, however, saw a positive for investors looking to buy equities.

“Despite the lingering situation, the Nigerian equities look very attractive compared to what was obtainable in 2013. The current market P/E of 13.53x compared to 2013 year-end P/E of 14.5x, and the sectoral P/E compared with 2013 year-end P/E show that the market looks ripe for investors to savour,” they said.

According to analysts, it will take clarity on the policy thrust of the incoming CBN governor and a resolution to the controversy stirred by the sudden suspension of Sanusi for the negative sentiment in the market at the moment to turn positive.

[Punch]

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