The Nigerian stock market index is routing towards the 2008 financial crisis level, as falling oil prices continue to put pressure on the naira, in addition to concerns over heightening political risks.
Month-on-month (MoM) analysis of equities transactions at the local bourse shows the ratio of foreign to domestic investors has fallen from a high of 81.43% as at August 2014, to 43.36% as at September, a confirmation that foreign investors are dumping Nigerian equities.
Consequently, about N2.4 trillion may have been lost year-to-date (YtD) from the value of the Nigerian stock market, depleting the benchmark index by 19.61%.
The end of quantitative easing (QE) by the US Fed is making the situation more critical, as foreign investors exit for higher yields on fixed instruments in developed markets.
There is anxiety on thefloor of the the Nigerian Stock Exchange as stockbrokers anticipate a resurgence of the sad effect of the 2008 financial crisis, many of them expressing worry over the Federal Government’s conservativeness in statements that could tame this huge investible fund outflow from Nigerian equities.
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The benchmark indicator (NSE ASI) stood at 33,224.84 points Monday, a little near 33,754.11 points, as at November 7, 2008 –a period when global stock markets dropped.
The value of Nigerian equities has declined from N13.379trillion as at January 8, 2014 to N11.004trillion at close of transactions Monday November 10, 2014.
In addition to unimpressive third-quarter (Q3) earnings of companies which failed to change foreign investors’ flight to safety mood, analysts said the latest in the reasons for sell-off in equities market is the Central Bank of Nigeria’s (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 rub-off effect on banking stocks, with a contagion on non-financials 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.
“Nigeria’s economy is dependent on oil revenue, and the recent decline in oil price signals possible shortfalls in revenues,” Sewa Wusu, market analyst at Lagos-based Sterling Capital told BusinesDay.
“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 sell pressure, occasioned by weak Q3 results, declining oil prices, high political risk rating and withdrawal by foreign portfolio investors (FPIs),” Wusu added.
Crude oil prices recently hit a four-year low, after Saudi Arabia unexpectedly cut the price of oil sold to the US.
Market analysts at the Financial Derivatives Company Limited, said in their outlook that, “The slide of the NSE ASI will continue, as there is lack of positive news in the market.”
They added, “Political tensions will heighten and increase country risk, causing Foreign Portfolio Investors (FPIs) to significantly reduce their exposure to the local bourse.”
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.”
Ademola added, “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.”
Iheanyi Nwachukwu
