Investors battered by one of the worst bear markets on record will be given a chance at a reset of trading books this week as 2014 comes to an end and a new year begins.
Some analysts say 2015 will give investors a chance to recoup some recent losses.
“A bear market will most likely be followed by a bull market in the short-to-medium-term. Existing investors at this point have to focus on the value and long-term prospects they stand to derive,” says Abiodun Keripe head of research and strategy at Elixir Investment Partners Limited.
The Nigerian Stock Exchange (NSE) benchmark Index has dropped by 16.7 percent this year to Dec. 24, as everything from Ebola to the potential of sliding oil prices hitting oil companies and bank profits and devaluation of the naira weighed on investor sentiment.
Positives such as Nigeria becoming Africa’s largest economy in 2014, its economy expanding by 6.9 percent according to IMF estimates, and the cheapest valuations among African peers were all ignored.
Bank stocks have been particularly hard hit, as the NSE Banking Index, which tracks the nation’s 10 biggest banks by market value has lost – 20.04 percent year to date, underperforming the benchmark.
“There is a possible risk from oil price decline to the NPL and provisioning of banks. Loans to the oil and gas sector currently stand at N2.45 trillion, with a growth rate of 24.4 percent – the highest growth in loans by sector,” Kayode Omosebi, an equity analyst with UBA capital Plc a Lagos based investment bank, said.
Other regulatory actions such as a hike in reserve requirements, have hit bank stocks which make up roughly 20 percent of total market capitalisation.
First Bank currently has about N560 billion sterilised with the Central Bank yielding no interest or return whatsoever, according to Oyewale Ariyibi Head of Finance, at Nigeria’s largest bank by assets, FBN holdings (FBNH).
“Hitherto, such funds would have been invested at an average interest rate of 12 percent per annum, thus the opportunity cost is an annual lost income of N67 billion,” Ariyibi said in an interview with BusinessDay.
Stock markets historically have proven to trend in cycles, climbing to anticipate economic expansions and positive momentum on reforms
and selling off due to uncertainty such as the upcoming elections.
The NSE index trades at a price – earnings ratio of 10.23, compared with 17.09 for South Africa and 14.34 for Kenya, according to data from Meristem Securities Limited, a stock broking and investment firm.
Despite the cheap valuation, investors are concerned that recent naira devaluation, higher interest rates and falling crude oil prices portend a slowdown in consumer spending next year.
“We expect the cement industry to see a softening in demand as capital expenditure slows on the back of restrictive fiscal policy and a higher interest rate environment,” Renaissance Capitals SSA economist, Yvonne Mhango, said in a Dec. 01 note.
More than N2.37 trillion has been wiped out in stock values since the bear market began in June, 2014.
Economic growth which strengthened in the current year should fall in 2015 with GDP expected to expand at an annualised rate of 5.2 percent, the lowest since 2009.
Another negative for investor sentiment next year is that stocks fell by 16.3 per cent in 2011, the last election year.
