Securities Dealers discuss Implications of Ukrainian Invasion for Stock Market, by Samuel Mbadugha

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Securities Dealers discuss Implications of Ukrainian Invasion for Stock Market, by Samuel Mbadugha

Ukraine in  turmoil 
The topmost story in the global stock market at the moment is the impacts of the Russian invasion of Ukraine on investor sentiment. At the heart of economic implications is the soaring energy prices. Russia  is the world’s  second- largest oil producer of crude oil  and also a major natural gas producer in Europe.

There are fears that the ongoing  invasion of Ukraine shall disrupt supply chains of crude oil and natural gas, put pressure on demand for these products with the consequence of skyrocket energy prices. For instance,J.P. Morgan has predicted an average of $105 per barrel of brent crude if the conflict between Russia and Ukraine continues while Goldman Sachs said Brent could average $130 per barrel.

Nigeria is not insulated from the fallouts of the  ongoing war between Russia and Ukraine. It’s  on the list of Russia’s top 10 import trade partners between the third quarter of 2020 and the corresponding period in 2021. By the data of the National Bureau of Statistics (NBS), the value of Russia’s imports to Nigeria over 12 months period is estimated at N993.38bn.

Global companies are exposed
The  invasion mood is an ill wind that blows nobody any good. Many top European and American companies with significant interest in Russia are highly exposed.  They are either moving out or selling stakes to cut losses. For instance, BP,the largest foreign investor in Russia with a 19.75 % holdings in the country’s national oil,  Roseneft has offered to sell $14 billion stake. Other companies on the edge are  Coca-Cola,  the London-listed company with 7000 people in Ukraine alone, a French yogurt maker,  Danone, Swiss consumer goods, Nestle, Renault, Shell, ExxonMobil,  McDonald and Japan Tobacco among others .  As the war mounts, investors should stay on top of changing events to track the stocks and sectors that are driving the market.

Soundbites of Stockbrokers
Stockbrokers believe that the impacts of the war would depend on the stock market environment, noting that the Nigerian economy had always demonstrated resilience.

The President, Chartered Institute of Stockbrokers (CIS), Olatunde Amolegbe who spoke on the contaminated fuel crisis in Nigeria before the outbreak of the Ukranian invasion, said whatever affected the energy sector would impact other sectors of the economy.

“Generally, fuel scarcity ultimately affects business activities and if it lingers for too long, it will impact negatively on companies’ earnings by the time the first quarter reports trickle in. Another issue is the menace of vehicles malfunctioning as a result of the bad fuel. How would such vehicle owners be compensated?” Amolegbe said.

Commenting on the ongoing invasion of Ukraine, the Group Managing Director, Futureview Group, Elizabeth Ebi,explained that it would certainly hurt the global economy but in different proportions.

“  The global economy is interlinked and so the world stock markets. But every market has its peculiarity. Our market is highly undervalued relative to its intrinsic value.  No matter what happens to the economy, the market remains resilient.”, said Ebi.

The Chief Executive Officer,  Wyoming Capital & Partners, Tajudeen Olayinka reviewed the entire scenario and posited that the Nigerian Stock market would always adjust itself.

“ The structure of Nigerian economy does not offer the economy latitude of immediate benefit from crude oil prices, in whichever direction crude oil prices moved. And this also suggests, the securities market is expected to bear a burden. Now that crude oil prices have breached the $100 bar, and still rising, prices of goods will likely skyrocket across the globe, producing imported inflation to countries that depend on finished goods and raw materials import, including Nigeria.

“ Even though exchange rate is expected to remain stable due to accretion to foreign reserves, the existence of fuel subsidy regime and other sundry issues around fuel import, would negate this benefit, in the immediate to near term. What this means is more inflationary pressure across the spectrum of the economy, and a possible negative budgetary impact. And for the stock market, equity prices will reflect capacities of listed companies to adjust to variability of costs and cost pressures in the short run, while mirroring possible spike in interest rate. In the long run when all factors become variable, economy is expected to witness normal prices, and so, the stock market.

“ Nigeria is always in a dilemma, irrespective of direction of crude oil prices. It seems very clear now that prices above $80 per barrel, come with inflationary impact, courtesy of imported inflation. While prices below $50 per barrel could produce almost a similar untoward result, courtesy of expected exchange rate depreciation. Either way, there’s inflationary pressure. The beauty of it at this time, is the fact that Nigerian stock market is already used to adjusting to inflation, as demonstrated since the beginning of covid-19 pandemic. What matters most is the capacity of every listed company to adjust accordingly.”, said Olayinka.

However, the Chief Executive Officer, Highcap Securities, David Adonri, noted that the global capital markets were already feeling the heat of the invasion and Nigeria’s gain from the rising price of crude oil might be wiped off by inflation.

“ Already, the global Capital Markets have declined considerably in reaction to the devilish onslaught by the Russian vampire. Even the Russian Capital Market narrowly escaped collapse just after the invasion. Commodity prices are also escalating, exacerbating the already heightened global inflation rate.

“ Although Nigeria will benefit from the attendant rise in crude oil price, the gains are likely to be lost to the imported inflation due to import dependence. Sooner or later, fundamentals of the Nigerian Capital Market will succumb to the disruptions inflicted on the global economy by the brutal invasion. When added to the heightened political risk arising from buildup to 2023 general election, equities may suffer this year. “, Adonri said.

 

 

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