NAN-HE-6
Inflation
By Chinyere Joel-Nwokeoma
Lagos, Nov. 15, 2016 (NAN) Some financial experts on Tuesday expressed concerns on the continuous rise in the country’s inflation rate, saying it would lead to continuous downturn in the Nigerian stock market.
They told the News Agency of Nigeria (NAN) in Lagos that the nation’s bourse would be the worst hit with the persistent rise in inflation rate currently at 18.3 per cent.
NAN reports that the financial experts were reacting to October’s inflation figure of 18.3 per cent against 17.9 per cent in September, released by the National Bureau of Statistics (NBS) on Nov. 14.
Dr Uche Uwaleke, Head of Banking and Finance Department, Nasarawa State University, Keffi, explained that the increasing rate of headline inflation in an environment of shrinking growth in output was not healthy for the stock market.
Uwaleke said that the spike in inflation rate would further dampen the confidence of domestic investors, particularly now that foreign investor participation had been on the decline.
“There is a correlation between inflation rate and stock market performance.
“Recall that on the first day of January this year, the Nigerian Stock Exchange All Share Index was around 28,000 points, with inflation rate still single digit at less than 10 per cent.
“Currently, the year to date return is negative with the NSE All Share Index struggling to stay above 26,000 points,’’ he said.
According to him, when the inflation figure of 18.3 per cent is factored in, it becomes obvious that the stock market has lost so much this year in terms of real returns.
Uwaleke said that the fate of the market was, therefore, tied to the recovery of the macro-economic fundamentals, including subdued inflationary pressure.
He explained that the key drivers of inflation, such as high cost of electricity, fuel, housing and food, had remained the same over the last few months.
Uwaleke stated that government’s commitment to invest in agriculture and infrastructure remained the only way forward.
Mr Ambrose Omordion, Chief Operating Officer, InvestData Ltd., said that the consumer price index for October should be a serious concern for the government.
Omordion said that government needed to revisit its fiscal and monetary policies at this moment to improve the economy.
“Inflation rate at 18.3 per cent is alarming, coupled with high Monetary Policy Rate of 14 per cent and banks interest rate in the region of 25 per cent,’’ he stated.
Omordion said that government, as a matter of urgency, should reconsider the current fiscal and monetary policies for the country to come out of recession.
He said that quoted companies would continue to struggle due to high cost of doing business with low purchasing power due to high cost of living.
Omordion stated that low purchasing power would continue to affect the corporate earnings of many companies, leading to poor performance and increasing unemployment rate.
“The negative macroeconomic indices will lead to high cost with falling earnings for companies and the people.
“Investors should focus on value stocks with good fundamentals and must trade with caution,’’ Omordion said. (NAN)
JNC/FF/SOA
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Edited by Fela Fashoro/Oluwole Sogunle