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After hitting an all time high in mid January this year, the stock market capitalization fell about 15 percent from N16.15 trillion in January 19, 2018 to about N13.71 trillion on June 5, 2018. Thus representing a loss of about N2.4 trillion in just 94 trading days!
The abysmal performance of the stock market in the last four months in the stock market is nothing like the stellar market performance we saw at the beginning of the year.
The new year started with a Big Bang as a stock price rally over the first 14 trading days of the year pushed market capitalization in the Nigerian Stock Exchange (NSE) to a record high of N16.15 trillion.
By 19th January, the NSE All share Index (ASI) had climbed to 45,092 points, it’s highest level since 2008.
The year to date return in the stock market as at January 19 was 18 percent and equites returned as much as 16 percent in January alone. The new year gains have been reversed since then as overselling in some of the top performing stocks have pulled stock prices significantly lower.
After early gains, the ASI has returned to its December 27, 2017 levels, giving up 1 month of terrific gains in January slowly over the next 5 months.
When stock prices fell dramatically in February and March, analysts opined that this was due to rising geopolitical tensions, threats of a trade war and political uncertainty in Nigeria as the general elections drew near.
Analysts expected that as the full year 2017 financial results of companies are announced, equity prices will recover buoyed by strong earnings growth and dividend payouts.
Most of the top companies have now released their FY 2017 results and some have even published their Q1 2018 results showing stellar earning performance riding of the back of the economic recovery in 2017 after the painful recession of 2016.
Nevertheless, stock prices have continued to drop as bearish investors have looked past current results.
Although analysts opine that valuations are currently low in Nigeria considering historical price multiples and the higher price multiples stocks in other emerging markets are currently trading at, the outlook for the Nigerian stock market doesn’t look any brighter. The sell offs could even continue as the election draws closer.
Foreign investors have been cutting exposure in emerging markets especially Nigeria as the treasury yields in US continues to rise and the possibility of a Naira devaluation looks likely to occur in some form later this year.
Sadly, the poor performance of the local equity market in the past few months may cause even more foreign investors to exit the market which will further weaken stock prices.
Nevertheless, the stock market is still up 16 percent in the last one year. The market rout could be short term which would give long term investors hope that the market prices will continue to appreciate over the next few years. Even though the market performance of 42 percent last year seems unlikely to be repeated, investors can be comfortable that the higher dividends earned this year will cover for some of the capital loss in stock prices.
Emeka Ucheaga
