Published On: Sun, Aug 12th, 2018

Bears clobber Bulls in major rout

By FELIX OLOYEDE

After a stellar 2017, The Nigerian Stock Exchange (NSE) has collapsed to becoming the fourth worst performing equity market on the global over the last six months as political pressure and a United States of America (USA) interest rate hike intensify investor’s apathy.

The Nigerian Stock Exchange

The local bourse plunged 18.24 per cent over the last six months to 35,446.47 after dropping -2.17 per cent on Friday, its lowest level in the last nine month due to large investor sell offs from emerging markets after the US Federal Reserve increased rates in June. Political tension in the buildup to Nigeria’s 2019 general elections has also spurred domestic investors to engage in huge profit taking.

China’s Shenzhen market posted the worst global performance over the last six months, having lost -21.26 per cent over the period, following the delisting warning to 41 companies by China Securities Regulatory Commission, the country’s securities regulator over violation accounting rules in the world’s third largest exchange. Shanghi and Turkish markets, which have dipped -20.84 per cent and -19.06 per cent respectively were the other exchanges the recorded worst returns above the NSE.

Total transactions on the bourse declined -61.1 per cent to N73.04 billion in July compared to N187.78 billion in June as foreign investors continued to express yield curve sentiment towards emerging markets as US treasury yields increase. Foreign transactions in the bourse were down -46.92 per cent to N102.41 billion in June with foreign inflows dipping -22.71 per cent and foreign outflows also dropping by -58.40 per cent in June. Similarly, domestic transactions declined by -31.87 per cent in June 2018.

Dampened performance by corporate organizations and investors’ decision to take flight to safety as Nigeria heads towards the 2019 general elections were largely responsible for the bearish trend in Africa’s second largest market, having emerged one of the best performed exchanges in the world in 2017, appreciating 47 per cent, explained Johnson Chukwu, Managing Director, Cowry Asset Management. “The equity market will remain largely bearish,” said he.

“The Nigerian stock market is not an equity market for short term investors. The sentiment around the market is that a lot of people investing in the market are short-term investors. Once there is a turn in the economy, you see the impact on the market. It is until investors begin to have a longer view that we may see stability in the market, but this may not happen in the immediate, posited Kunle Ezun, Treasurer, Ecobank Nigeria. He argued that the better-than-expected results posted by some large cap companies ought to have a positive impact on the Exchange, but uncertainties surrounding the forthcoming general elections and the impact of global economies on emerging markets have had a dampening effect on market outlook. He also reasoned that unless fundamentals are allowed to prevail in the market, investors would continue to hold short term positions.

The NSE All Share Index (ASI) lost 786.19 points, representing a -2.17 per cent to close last Friday at 35,446.47 points on the weighed down by losses posted by medium and large capitalized stocks. Sterling Bank led the losers train shedding -8.05 per cent, followed by Wapco and Dangote Cement, which dropped -6.35 per cent and -6.14 per cent respectively as market capitalization declined by  N287.03 billion, representing  -2.17 per cent slump to N12.94 trillion, its worst nine month performance.

The bourse was down -2.89 per cent, while market capitalization shed -2.86 per cent  last week and all other indices also decreased except the ASeM Index, which was flat. The oil and gas index was worst hit, plummeting – 5.41 per cent last week.

“Twenty (20) equities appreciated in price during the week lower than thirty-four (34) in the previous week. Forty-seven (47) equities depreciated in price lower than forty-eight  (48) equities of the previous week, while one hundred and three (103) equities remained unchanged higher than eighty-seven (87) equities recorded in the preceding week,” the exchange explained its weekly market report. It has NSE has depreciated -4.56 per cent between January 2 and August 10, 2018.

The Nigerian has witnessed a slow pace economic recovery after exiting a 18 month recession in June 2017. The economy grew 1.92 per cent in the first quarter of 2018, after witnessing its lowest contraction in 29 years of -2.24 per cent in the third quarter of 2016. Meanwhile, the country data agency, National Bureau of Statistics (NBS) is due to release the second quarter Gross Domestic Products (GDP) by output report on August 20.

The dominance of politics over economic policies, low credit to the private sector and risk aversion by business operators ahead of the 2019 general elections, would likely stall economic growth for the rest of the year, noted the Cowry Asset boss. He added that weak growth in the agricultural sector due to high level of insecurity during the planting season and likely drop in the performance of the oil sector may also slow down the economy.

“For an economy to achieve sustainable growth and development, it must be driven by productivity, which is in turn underpinned on consumption and or export. If an economy lacks the capacity to export local consumers lack the capacity to consume, such economy will at best enjoy flash economic growths,” Chukwu stressed.

Meanwhile, Nigeria has had significant success in taming inflation rate, which has decelerated 17 consecutive times to 11.23 per cent, though food inflation is still, understandably, high given the insurgency and cattle herdsmen challenges in the food production belt of the country.

 

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