The Nigerian Stock Exchange (NSE) has lost over $5.6 billion of its value in the first quarter of this year as investors, rattled by a monetary tightening stance by the Central bank of Nigeria and US tapering, took profit from last year’s bull run.
The NSE All Shares Index dropped by 5.2 percent for the three months ended March 27, from 41,329.14 points it opened during the beginning of trading in January 2014 to close at 39,186.93 points on Friday. The index measures the performance of the stock market and also reflects how prices of stocks have moved, which in turn determines how much investors made as gains or losses.
Analysts however expect the market to recover in the second half of the year buoyed by rebasing of the west African nation GDP, which will make Nigeria the largest economy on the continent, and local oil companies listing on the NSE.
The NSE posted the best performance in Africa last year, gaining 44 percent year-on-year lead up by financial and consumer stocks.
Diekola Onaolapo, managing director at Eczellon Capital, told Vanguard that US gradual withdrawal of its stimulus package pushed foreign investors exit their holdings in the Nigerian market for less risky positions in more stable markets.
“This was in no way exclusive to Nigeria as it affected all the emerging market economies with the worst hit being Argentina,” Onaolapo said, adding that the decision to increase interest rates locally by the monetary policy committee (MPC) meeting in January also sent shock waves through the market.
The MPC resolved to increase the Cash Reserve Ratio on public sector funds to 75 percent from 50 percent during its January sitting. This hurt the local currency, which fell 3.21 percent to post a -0.34 percent depreciation this year.
“The suspension of the Governor of the Central Bank also contributed to the dip in equities prices in the market. The All Share Index plunged by 1.47 per cent at the announcement of the suspension which led to a further fall of 4.46 per cent in the banking sector index. This also gave a push to a series of sell-offs by foreign investors,” Onaolapo added.
In comparison, global stocks performance fared better in the first quarter of the year as the US Nasdaq Index surged by 2.95 percent to close at 4,154.20 points last week Thursday. Similarly the Standard &Poor 500 index which has appreciated by 0.8 per cent to close at 1,855.81 points on Thursday.
Commenting on the outlook for the second quarter, Onaolapo told Vanguard, “A foray of primary market issues is expected to set the tone for rest of the year, as the market has been viewed as viable platform to raise long term funds,” saying that the de-mutualisation of the Nigerian Stock Exchange, capital issues by indigenous oil companies and likely approach of the market by the power companies would add to the expected positive run in the second quarter.
He further stated that the rebasing of the GDP by the National Bureau of Statistics (NBS) will also lead to an optimistic outlook for the economy, adding that the rebasing would push the nominal output to about $400 billion.
“The implication of this is that public debt will contract, improving the capacity of the Nigerian state to increase her borrowing. We believe this will spur more of domestic borrowing than external borrowing, hence the issue of capital market instruments.”
