INCREASING STATES’ DEBT NOT HARMFUL TO STOCK MARKET ― ANALYSTS

Capital market analysts have said the increase in the debt stock of states is not detrimental to the performance of the nation’s equity market. Data from the Debt Management Office on Thursday showed an increase in the domestic debt stock of the states and the Federal Capital Territory as of June 30, 2018.

According to the DMO, 11 states recorded high debts, running into trillions of Naira. The data showed that Lagos State had the highest debt at N517.367tn, accounting for 15 per cent of the total domestic debt, followed by Delta State at N222.680tn. Rivers State is the third highest at N191.156tn, followed by Akwa Ibom with N179.714tn debt.

The debt stocks of Osun, Cross River, Benue, Plateau, Ekiti, Kogi and Ogun states stood at N135.831tn, N124.943tn, N123.031tn, N121.579tn, N117.724tn, N114.332tn and N104.933tn, respectively.

Analysts, who spoke in separate interviews with our correspondent, said there was no need for investors to fret about the impact of the increased debt on the performance of stocks as it would not have a negative effect on the stock market in the short run.

An analyst at Cordros Capital Limited, Christian Orajekwe, said only a significant increase in the Federal Government’s debt was capable of negatively affecting the capital market. According to him, it is only when the cost of debt servicing on the Federal Government revenue increases that there will be a cause for concern.

He said, “As it is, the Nigerian total debt stock in comparison with its Gross Domestic Product is not a cause for alarm. What people should be bothered about is the slow economic growth rate and the inflation rate, which may likely increase as this will affect market performance adversely.

“Also, the approaching elections should be a source of worry; each election period makes investors fret and withdraw from the market due to uncertainties. However, the domestic debt data should not worry people.

“When you look at the total debt stock of the Federal Government, you will see an element of the states’ debt in there. To a large extent, when investors want to examine debt, it is the Federal Government’s debt they examine – the amount, financing cost and risks attached.”

An analyst at ARM Capital Partners, Feyisike Ilemore, stated that such developments as increase in debt could not affect the stock market. She said the market would only be affected by macroeconomic fundamentals and liquidity.

She stated, “If it is something like increase in oil price, that will definitely affect the market, because oil price fits directly into foreign exchange. It means that many companies that use forex to run their businesses will have more access to it and report better performance, which will affect the market. “That the states are accumulating more debt has no impact on the stock market.”

https://punchng.com/increasing-states-debt-not-harmful-to-stock-market-%E2%80%95-analysts

 

 

 

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