The Nigerian equities market took a turn for the worse in the immediate past week as investors lost N1.21 trillion. With the global crude oil price reaching 12-year low and below Nigeria’s 2016 budget benchmark, investors at the Nigerian stock market panicked that a poorer foreign exchange income prospects may further worsened Nigeria’s foreign exchange position.
The downtrend at the Nigerian stock market then turned into a panic, with equities going on full sell mode. With the frenzy for exit, aggregate market value of all quoted equities slumped to a low of N8.087 trillion as against its opening value of N9.296 trillion for the week, representing a loss of N1.21 trillion in five trading sessions.
The All Share Index (ASI)- the common value-based index that tracks prices of all quoted equities, recorded a week-on-week decline of 13 per cent to close at 23,514.04 points as against its opening index of 27,028.39 points.
With last week’s steep decline, the Nigerian stock market has lost N1.76 trillion in the past 10 trading days. Aggregate market value of all quoted equities now stands at N8.087 trillion as against N9.851 trillion recorded as opening value for the year. The ASI has dropped to 23,514.04 points as against the year’s opening index at 28,642.25 points.
Average year-to-date return so far in 2016 currently stands at -17.90 per cent, implying that investors have lost nearly one-fifth of their portfolios. The 2016 business year is starting on the worse note. The 10-day loss is more than the full-year loss recorded in each of 2015 and 2014.
The downtrend in the early days of 2016 has worsened the negative outlook of the Nigerian capital market. Against all projections, the Nigerian stock market closed 2015 with a negative full-year average return of -17.36 per cent, nearly a notch above -16.14 per cent recorded in 2014. Approximately, this implied a loss of N1.63 trillion in 2015, a somewhat hard-to-bear addition on a loss of N1.75 trillion recorded in 2014. Altogether, Nigerian equities had lost N3.38 trillion in the past two years, nearly a quarter of their market value of N13.226 trillion recorded at the beginning of the period.
Amidst concerns and panic about the short-term outlook for the market, authorities at the NSE at the weekend activated the market’s circuit-breaker rule, which allows the market regulator to intervene and halt trading when market declines to a certain point. The circuit breaker rule, known as “Article 170: Trading Halts Due To Extraordinary Market Volatility (Index Circuit Breaker Rule)” was earlier instituted by the NSE but its implementation was deferred. A notice by the NSE indicated that the circuit breaker rule became effective on January 15, 2016.
The circuit breaker rule stipulates that the Exchange shall halt trading in all stocks and shall not reopen for the time period specified if a 5.0 per cent move is recorded in the ASI between 10:15 a.m. and 13:45p.m on a trading day as compared with the closing value of the ASI for the immediately preceding trading day.
Analysts at Afrinvest Securities said pressure on global oil prices dampened investors’ sentiments on Nigerian equities noting that the falling oil prices signals a further depression on the performance of fiscal budget for 2016 given the dependence of Nigeria on oil revenue and raised the increased need for the fiscal authority to review the assumptions of the 2016 budget in line with current realities.
“The tsunami of massive sell-offs in the week was noticeable across sectors, large caps and blue chip stocks underscoring the generally weak market sentiments. In our view, the domestic macroeconomic headwinds and the global concerns have battered investors’ confidence and triggered the massive run to safety.
Global stock market analysis showed widespread declines across advanced and emerging markets. In Africa, Egypt continued to lead the selloff with the EGX 30 Index losing 15.4% last week, two points above Nigeria. The Chinese market, where authorities have had to intervene to slow down massive selloffs, continued to lead the global equities depression. The Shanghai Composite Index dropped by 9.0% last week, bringing total losses within two weeks to 18.0%. The Russian RTS Index declined by 8.8%. in London, the UK FTSE All Share Index dropped by 2.2%. The Hong Kong Hang Seng Index dropped by 4.6%. The German DAX Index slipped by 3.0%.
Total turnover at the Nigerian Stock Exchange (NSE) stood at 1.46 billion shares worth N14.165 billion in 15,164 deals in contrast to a total of 899.604 million shares valued at N7.669 billion that exchanged hands in 14,164 deals in the previous week. The financial services sector continued to lead the activity chart with 1.287 billion shares valued at N8.953 billion traded in 10,020 deals; representing 88.17% and 63.20% of the total equity turnover volume and value respectively.
Three leading banks-Guaranty Trust Bank Plc, Zenith International Bank Plc and FBN Holdings Plc, were the most active with a turnover of 693.443 million shares worth N7.719 billion in 5,960 deals, representing 47.51% and 54.49% of the total equity turnover volume and value respectively.
“While we perceive the sell-offs as currently overdone, we do not see a short term rebound as most of the debilitating factors are still evident. We would rather suggests investors with a long investment horizon of more than two years to take advantage of some of the opportunities in high dividend paying industrial and Tier 1 banking stocks while hedging their exposures with an overweight exposure to fixed income securities and urge short term investors who are risk averse to play more in the fixed income market,” Afrinvest Securities stated in its weekend note.
Most analysts however said the declines at the Nigerian stock market have created massive opportunities for existing and new investors to build long-term portfolios.
Analysts at GTI Securities said the anticipated increase in business activities as result of the size of the 2016 budget would boost investment interest in the stock market, noting the fact that several stocks currently trade at their five-to-six years low.
“Almost 90% of quoted firms have December 31st for their year-end. This means that handful of these firms with traditional dividend payment history will make their final dividend disclosure soon. This will be expected to boost activities,” GTI Securities stated.
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