Business
Stock Market takes a battering, loses N1.2 trillion in the two months
Therefore, the ASI shed 3,660.12 basis points which is 10.55% loss while the market capitalization was lowered by N1.159 trillion losses.
The All-share Index and the market capitalization of equities are the major parameters to measure the gains and losses in the stock market. During this period, there was active sell-offs in most equities as sell pressure outweighs bargain trading thereby crashing prices of most blue chips company stocks and generally affecting the banking sector on the bourse negatively.
The All-share Index and the market capitalization of equities are the major parameters to measure the gains and losses in the stock market. During this period, there was active sell-offs in most equities as sell pressure outweighs bargain trading thereby crashing prices of most blue chips company stocks and generally affecting the banking sector on the bourse negatively.
The reasons for the losses in the capital market cannot be divorced from the general economic outlook in the country. Firstly, the collapse of the capital market post 2008 had shown that the market is liquidity-driven more than fundamental, variable-driven; illiquidity has remained a key concern for both the listed firms and the investors alike.
Secondly, most of the existing quoted companies need additional funds for expansion and some of the entities, including banks are planning to fund new growth sectors of the economy undergoing privatisation; so fresh capital is required and in the current environment, probably possibly through rights from existing shareholder.
Thirdly, the stock market at the moment lacks a specific direction. Investors and stakeholders felt that the economy has no direction at the moment as the government, the prime mover of the economy has not slicked or show the direction of the economy; so investors are waiting for the government to show the economic blueprint which is lacking at the moment. They felt that as long as the government has not appointed key ministers to pilot the economy, then the economy has no specific direction and investors are patiently waiting for the government to lead the way.
“The stock market is not doing well at the moment and this is the market that creates wealth. When the market is not creating wealth, people’s wealth is eroded, we are faced with another problem that needs urgent solution,” said by Mr. Tajudeen Olayinka, a stockbroker with Valmon Securities. He went further to say that “the domestic investing capacity has gone down particularly in the stock market
The market lacks access to credit, which could have helped retail investors and other highly intelligent local speculators. What I am saying is that people who are supposed to play big in the market are not there. Everything revolves around the domestic buying capacity or the buying power of domestic investors.
Even when you want to take advantage of the market from time to time but because they lack the domestic buying capacity, so they do the little they can do; this now makes the foreign portfolio investors to dictate the pace of the market and tells you what price you can buy and what price you can sell because they are stronger, financially. The domestic buying capacity (DBC) should have gone up by now because of the low valuation of stocks, but banks cannot lend to you to buy stocks.”
The capital market is the barometer to measure the performance of any economy both in the developed world and elsewhere. A booming Stock market will show good sign of a thriving economy while a stagnated economy will be reflected by the performance of its stock market. The stock market has thus recorded tremendous loss at the second half and beginning of third quarter 2015. “This goes to show that our economy is in shambles, whether you like it or not, that is the sad reality” said by a stockbroker who wants to remain anonymous.
Another major reason for the lull in the capital market is the structure of the market. Mr. Olayinka said “The reason why the market is down is that there is a structural failure.
The market has it structure, the economy has its structure and there is a link between the two and that link no longer couple.
Even without currency devaluation and falling oil prices, any other thing could have triggered the market structure failure.” The market structure resolves around price discovery and price discovery comes from activities amongst key players in the market comprising the speculators, the investors and the arbitrageurs.
In a situation where you have more speculators than investors, it will create a problem because both of them are supposed to work together. Thus, you have more people speculating than those actually taking up investment and what could have helped the two to relate very well is the presence of a market maker. The market maker is there to mirror the fair value of securities in the market, ensure sustenance of liquidity and ensure orderly movement in share prices. However, the market maker is lacking.
Finally, he said “The people who could play the role of domestic speculators and investors are staying out, perhaps because of volatility.
For instance, the Pension Fund Administrators (PFA’s) are not strongly present in the market because of failing structure and the way their investments are accessed by PENCOM.
So, if they have to invest in an investment class that will cause loss of value, the best bet is for them to stay out.”
Many stocks on the Nigerian bourse look pricey and others may not enjoy the explosive growth of prior years. Some of the companies have struggled this year but still have lots of room to run, even at this stage in the bears’ market.
Another factor responsible for the lull in the capital market is that most investors at the end of second quarter had exited from the market for lesser risk government assets, since the earning season is over and nothing to earn in the stock market at this period to next year except for capital gains.
Although, billionaires and high net worth investors were buying stocks with both hands before because of the low valuation of stocks they are now apprehensive. Stocks are underpriced at the moment.
Stocks that should be selling for a much higher price are now very much lower and discerning investors have not seized the initiative to buy.
Stock Market indicators such as the All-Share Index (ASI) and Market Capitalization of equities will tell the movement of the market whether downward or upwards.
The following are the indicators from the beginning of the period-
The trend of the stock market as depicted above shows a gradual steep or slope which terminated in a straight line. The market outlook in recent weeks’ revealed continued negative sentiments as the market indices sustained a gradual decline as shown by the graph above.
In conclusion, Tajudeen Olayinka said “I want to encourage investors.
The foreign investors have really done a colossal damage to price discovery in the market as it dictates the pace, determine the prices to buy and sell and also determine the cost of capital.
To me, presently, stock prices are quite low.
Those who have the means should come in and take advantage and those with holding capacity should access the market and take advantage of the low valuation, because by the time there is a rebound, the prices will be unstoppable.
Most of the banking equities are extremely low, so they should take advantage.
However, do not take advantage when you want to speculate shortly. Hold it and do not panic because it can go further down but the market will soon recover; what goes down must come up.”