After enduring 13 days of straight losses, Nigerian stocks have the questionable honour of being the world’s worst performing this year. Yet the man in charge of the stock market is not worried about a full-blown crisis. “I’m not expecting to see a sell-off, and indeed we haven’t seen a sell-off,” said Oscar Onyema, chief executive of the Nigerian Stock Exchange (NSE), in an interview with beyondbrics. Rather, he says “the Nigerian stock market has adjusted downward, as you would expect in an OPEC country.”
There’s not much to like about Nigerian stocks right now. Driven by falling oil prices and in tandem with a depreciating currency, the main index had 13 straight days of losses before staging a small recovery on Tuesday. It has fallen 20 percent in the past quarter, making the Nigeria’s the worst performing stock market in the world right now.
Yet Onyema does not believe the market is on the verge of collapse. Speaking on the sidelines of the World Economic Forum’s Summit of the Global Agenda in Dubai, he said Nigeria and its markets were adjusting to a new reality of lower oil prices. “We’re no exception to the broader trend in all OPEC countries, which are all affected by the drop in oil prices,” he said.
That the drop has been steeper in Nigeria than in other countries, he said, was down to the behaviour of foreign investors. “Our market – from a trading perspective – is dominated by [foreign] portfolio investors. They try to exit their positions, secure their profits, and eliminate currency risk. That is what I believe affected the market.”
Local investors, however, who, according to Onyema, hold most the majority of Nigerian equities, have stayed put – partly because they are less affected by currency risk, and partly, he says, because they are more convinced of the intrinsic value of Nigerian companies.
The Exchange’s figures for monthly trading this year to September – before the recent exit of foreign investors – show that foreigners accounted for more than 53 percent of transactions on the Exchange, with outflows for the year already exceeding inflows.
The rest of the year is not set to be much better. Onyema gives three factors that make a year-end rally unlikely.
First, the North East of the country is destabilised by the threat of terrorists’ attack, as evidenced again by this week’s bombing in Potiskum, which killed 48 people. With several listed companies active in the region, Onyema said, “the impact can certainly not be positive”.
Second, with elections due in February next year, the market is likely to be subdued until a new government takes over. “What people are looking for is a clear result without acrimony,” said Onyema. Once there is a clear result, whoever wins, he expects the market to get back to life. In the mean while, “the market as a whole just doesn’t like uncertainty.”
Lastly, Onyema points to a typical Nigerian year end lull in the equity market. “The cycle is not quite like that in Europe or the US,” he said. “Investors in Nigeria, in the run up to the end of the year, tend to sell down for Christmas, to put away money for school fees etcetera.”
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What Onyema does not fear, however, is a complete collapse on the scale of what happened in 2008-09, when the stock market lost up to 65 percent of its value and took years to recover.
“There is no bubble like there was then,” Onyema said. “There is a lot more risk management in banks and other companies. You don’t have the overblown evaluations. And people have better buffers. On the banking side and on the capital market side there is a more risk based regulatory approach. We drew lessons from the last time, so the situation is different now.”
Exchange officials, he said, have set out to build confidence among investors, especially local ones. “We’re talking to investors to make sure that they are actually looking at fundamentals – especially those who don’t have the currency exposure. We’re trying to make sure that all the elements that build trust are available.”
And he trusts the central bank to keep the currency’s slide to a minimum. “The central bank has a lot of tools, administrative and open market ones, to defend the currency,” he said. “That doesn’t mean the currency cannot move within a band. But they wouldn’t let it move in one direction perpetually.”
Onyema can take some encouragement from Tuesday’s retracement. But it is likely to be more than 13 days before the index makes up its recent losses.
Culled from FT
