Stock market remains volatile, sheds N1.86trn in 1Q

The Nation’s capital market recorded poor performance in the first quarter of 2020. In this report AMAKA IFEAKANDU writes on the factors that impacted negatively on the growth of the market and other steps needed for its revival.

The nation’s capital market in the first quarter of this year recorded low performance following the decline in the prices oil price and global coronavirus pandemic, the outbreak that has afflicted virtually many stock markets and paralysed global economies.

Bearish trend

The market which started the year on a positive note unexpectedly, returned to bearish trend, forcing market capitalisation to nosedive, shedding  N1.858 trillion  or 14.34 per cent to close the quarter at N11.100 trillion from N12.958 trillion it opened for the year.

The Nigerian Stock Exchange (NSE) All Share Index also dipped by 5541.60 basis points or 20.65 per cent to 21,300.47 points against 26,842.07 points it closed on December 31, 2019.

Open Market Operations

But before the beginning the year, the Central Bank of Nigeria (CBN) came up with directive, restricting domestic investors ( both institutional and retail investors) from participating in its open Market Operations (OMO), fixed income market  led to crash in rates, leading to continuous decline in treasury bills with the 91-day, 182- day and 364 day rates respectively.

Consequently, this impacted  positively on the prices movement, leading to bull- run through out the month of January.

World largest economies

It could be recalled that before the onset of the ravaging virus, the global markets carried a positive momentum into the new year amidst trade tensions between the two world largest economies – the USA and China, a situation that had dominated market trend for some part of 2019 but reduces following the signing of phase one trade deal by both countries.

All these reflected in the market performance in the month of January.

Available data  from the Nigerian Stock Exchange (NSE) indicated that the market returned to bullish trend in the month of January 2020, appreciating by N1.899 trillion or 14.66 per cent to close at N14.857 trillion.

The NSE Index also rose by 2001.46 basis points or 7.46 per cent to close at 28843.53 points. But in the month of February, the market nosedive, dropping by N1.200 trillion or 8.08 per cent to close at  N13.657 trillion while the index within the period sheds 2626.07 basis points or 9.11 per cent to close at N26216.46 points.

Market sustains volatility

The month of March saw the market sustaining volatility, dropping by N2.557 trillion or 18.72 per cent to N11.100 trillion from N13.657 trillion it opened for the period while ASI went down by 4915.99 basis points to close the month at 21300.47 from 26216.46 it closed in February this year.

The  poor performance  witnessed in the NSE market within this period became more discouraging as investors started trading with cautious on the negative impact of the fall in oil price and spread of COVID-19 on the global financial market. 
The dwindling investors confidence is equally reflected in the fact that the market failed to recognise all the policy measures put in place by Central Bank of Nigeria and  federal government N20 cut in the price of premium motor spirit (petrol) to N125 per litre in a bid to reduce  the impact of coronavirus pandemic.

Total shut down

With the total shut down of business activities in the country, especially in Lagos , Ogun states and Abuja following the increase in the number of Nigerians affected by the virus, some local investors  adopted wait and see attitude while some engaged in share offloading to enable them play safe, stockpiles their various homes with food stuff , pending when economic challenges caused by Covid-19 would be over.

Unfortunately, as monetary policy authorities and governments across the globe continued to roll out stimulus measures to cushion effect of the pandemic on households and businesses, the IMF hinted that the global economy is now in a recession. 

IMF’s current report
With the IMF current report, the decline in the oil price in the international market, there is tendency that the nation’s economy will likely go into another recession if proactive action is not taking to support the economy.
An average Nigerian exercise fear that  If this Coronavirus continues by next month, the implication is that oil price may go down to $10 a barrel or lower and Nigeria may be forced to shut down production since it does not make sense for NNPC to sell Brent at $10 when they are producing at $22 per barrel.

This  means that Nigeria’s 2020 national budget which was predict on $57 per barrel cannot be funded from the current price of oil. So from all indications, the nation’s economy is under serious threat with the current pendamic virus ravaging the global economy. It is believed that the various foreign aids and grants from USA and other developed economies to developing countries will surely be affected or drastically reduced, meaning there will be No more free money in the system. This CODIV 19 is going to trigger a major RESET on the World economy and politics.

Economic challenges

Although the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele on behalf of bankers committee entered into partnership with the private sector led by Aliko Dangote, Access Bank to form the Nigerian Private Sector Coalition to raise N120 billion to support the fight against Covid -19, the economy is still faced with a lot of challenges which include hardship, loss of jobs among others.
The target of the coalition group is to support government , pump fund into private and public healthcare sector to enable them respond to the crises, but the situation seems to be more difficult as some state government do not have available centre and other facilities needed to tackle the situation in the first  instance.

Another issue at hand was that sit down at home  pronounced by President  Buhari and some State Governors could not hold waters as many families could not stay longer at home due to the high level of poverty in the country as majority of people earn their living from daily earnings.

Despite, the challenging period we found ourselves in the country and across the world, some financial experts still believed that the downward trend recorded in the equity market in the recent time has provided new opportunities for value investing among investors.

Equity investment

They explained that value investors are interested only in juicy margins in equity investment, as they seek to buy into stocks that have value and at the same time protecting their capital from taking wrong decision and market downturns.

In all, operators were optimistic that what ever might be the nation’s economic challenges it will bounce back if our leaders should look inward and develop non oil sectors of the economy. They see investing in agriculture, manufacturing, health sector, education, SMEs as a step that would not only boost economic activities but will reduce unemployment in the country. 

Operators share  similar view that the capital market sector does not operate in isolation, adding that once the economy recovered from all its challenges, the nation’s capital market will also bounce back.

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