The Nigerian stock market may be routing towards 2008 financial crisis level following the year-to-date (ytd) loss of about N2.4 trillion which has further depleted the value of the benchmark index by 19.61%.
The benchmark indicator (NSE ASI) fell to 33,216.31 points Friday nearing 33,754.11 points as at November 7, 2008 –a period when global stock markets dropped.
Analysts said reasons behind recent broad-based sell-off at Custom Street are not farfetched as investors’ appetite in Nigerian equities dampens in relation to falling oil prices which continue to have contagious pressure on naira. There is also a concern relating to Nigeria’s heightening socio-political risks, even as unimpressive third-quarter (Q3) earnings of most companies failed to change investors’ flight to safety mood.
Value of Nigerian equities has dropped from N13.379 trillion as at January 8, 2014 to N11 trillion at close of transactions last Friday November 7, 2014. Also, in the eleven month period, the Nigerian Stock Exchange All Share Index (ASI) dropped from 41,806.73 points to 33,216.31 points, down by 8,590.42 points.
The latest in the reason for sell-off in equities market is the Central Bank of Nigeria (CBN) recent decision to restrict interest earning deposits at the Standing Deposit Facility (SDF) window to N7.5 billion per bank. The decision is having a rob-off effect on banking stocks with a contagion on non-financial stocks.
“Interest in stocks has dampened. At current level, the stock market portends opportunities for risk tolerant investors. After next year’s election, the market will stabilise. Nigerian economy is dependent on oil revenue, and recent decline in oil price signals possible shortfalls in revenues,” Sewa Wusu, market analyst at Lagos-based Sterling Capital told BusinessDay.
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“The equities market is in a bearish state. The market lost 3.68% last week Friday. It lost 4.07% the preceding day (last week Thursday). So far this year, the market has lost 19.61%. This was due to sale pressure occasioned by weak Q3 results, declining oil prices, high political risk rating and withdrawal by foreign portfolio investors (FPIs),” he added.
Crude oil prices recently hit a four-year low after Saudi Arabia unexpectedly cut the price of oil sold to the US.
Most analysts believe the stock market is yet to bottom, as they foresee increased bearish pressure in the silent November/December months, as the earnings season ends.
According to research analysts at Lagos-based Associated Discount House Limited, the CBN decision on Standing Deposit Facility will affect the liquid tier-1 banks most, “thus reinforcing the sell-off on banking stocks in the equity market, which we believe is yet to bottom.”
“Notwithstanding the technical attraction of some value counters, we believe the market has headroom for further weakness, especially as naira volatility will further justify foreign portfolio outflow,” the analysts said.
Femi Ademola, head, research and intelligence, BGL Plc said, “I think we should call it a correction and may not reverse strongly until year end.”
According to him, “I expect some reversal once the presidential candidates for the next election are announced; it won’t be strong enough to turn the market to positive for the year.”
