Nigerian stocks will end March with their worst performance in over 10 years following volatile trading in the month due to the coronavirus pandemic fallout.
The Nigerian Stock Exchange ( NSE) All- Share Index has declined around 16% as of the close of trade in Lagos Friday, making it the biggest for investors for the month since 2010 at least, while trade on the bourse has been most erratic since January 2018.
Stocks in March recorded their biggest mean deviations indicating huge price swings last seen about two years ago.
A depressing outlook on the domestic economy trailed outbreak of the COVID- 19 which depressed oil price, Nigeria’s main export, and subsequently affected domestic economic activities as social- distancing measures forced non-essential businesses in Lagos, the country’s commercial capital, to halt operations.
In other parts of the country, a similar measure has been put in place to curb the spread of the disease which as of noon Sunday stood close to 100 confirmed cases in Nigeria.
But economist and experts including the Finance Minister Zainab Ahmed have warned that Nigeria could enter a recession in six months, an outlook that could lower expectations for the stock market in 2020 where the NSE recorded its best start to a year since 2013 at least.
Data on manufacturing Purchasing Managers’ Index ( PMI) showed manufacturing sentiments in March at its lowest in almost three years, while non- manufacturing PMI entered “recession zone” or fell below 50 points or the first time since 2017.
The PMI is considered by some analysts and economists to be a predictive tool for output growth.
With the world already in a recession according to the International Monetary Fund (IMF) last week, current economic challenges are not exclusive to Nigeria.
However, Niger i an stocks at multi- year lows and attractive valuations will be balanced by considerations around policy response by the government to the crisis which has now forced an adjustment of currency value by the Central Bank of Nigeria ( CBN).
Last week, Nigeria’s long-term rating was lowered from B to B- ( shortterm still B) by S& P because it believed that the FG’S policy responses are unlikely to be enough to mitigate the effect of lower oil prices which will hurt Nigeria’s external and fiscal positions, and put further pressure on the foreign exchange reserve.
So far fiscal stimulus includes a downward budget revision, lower fuel price, relief by the FIRS and passage ( by lawmakers) of an Emergency Economic Stimulus Bill that would suspend corporate taxes, place a moratorium on mortgages, remove fiscal bottlenecks on the importation of medical and other essentials among other things.
Similarly, Fitch Ratings downgraded the threehighest rated banks in Nigeria to Long-term Issuer Default Rating ( IDR) ‘ B’ and Viability Rating ( VR) ‘ b’, and placed National Ratings of all 10 rated Nigerian banks (excluding Stanbic IBTC Holdings) on Rating Watch Negative (RWN).
“… all Nigerian banks will face material pressures from a weaker operating environment over the next few months given the oil price crash, a potential further devaluation of the Nigerian naira and the impact of the COVID- 19 pandemic on individuals and businesses,” Fitch said.
Analysts say the shortterm outlook is not favourable but investors with long- term outlook can take advantage of the deep discount in the market to position in fundamentally sound stocks ahead of improvements in the global and domestic economy.
