The Nigerian Stock Exchange (NSE), which stepped into 2016 on an unfavourable note, finished the first quarter with a loss of N1.146 trillion.
Available statistics show that activities on the floor of the Exchange skewed downward, as the market, which opened high at N9.850 trillion in capitalisation and 28,642.25 in index at the beginning of trading last January, closed yesterday at N8.704 trillion and 25,306.22 index points, representing a loss of about N1.146 trillion or 11.63 per cent year to date.
Despite the unprecedented bullish rally witnessed in the first two weeks of March, which ended with a gain of N441 billion, the low market sentiments worsened following investment apathy, as foreign and local investors remained on the sidelines.
Financial analysts believe some of these factors sent shock waves to both local and foreign investors and created uncertainty in the investment environment, leading to a retreat on the part of the bargain hunters.
The plunge in oil price has put Nigeria’s currency under pressure and dampened appetite for assets in Africa’s biggest economy and chief oil exporter, prompting the Central Bank of Nigeria (CBN) to intervene repeatedly to try to prop up the local currency.
According to a report from the Exchange, due to the massive exit of international investors, domestic investors outperformed foreign investors by 27.04 per cent, as domestic transactions increased from 48.43 per cent in January 2016 to 63.52 per cent in February 2016. Foreign Portfolio Investment (FBI) transactions however, decreased from 51.57 per cent to 36.48 per cent over the same period.
Total transactions at the nation’s bourse increased by 39.44 per cent from N84.10 billion recorded in January 2016 to N117.27 billion (about $0.60 billion) in February 2016. In comparison to the same period in 2015, total dealings decreased by 36.44 per cent from the N184.49 billion recorded in February 2015. According to the report, monthly foreign outflows outpaced inflows, which was consistent with the same period in 2015.
Nevertheless, foreign outflows increased by 20.79 per cent from N26.36 billion in January 2016 to N31.84 billion, while foreign inflows decreased by 35.68 per cent from N17.01 billion in January 2016 to N10.94 billion in February 2016. The Chief Executive Officer, Financial Derivatives Companies (FDC) Limited, Mr. Bismark Rewane, said it was likely that the current downturn in the nation’s capital market would be sustained in the near term.
Rewane, who stated this at the FDC Economic Bulletin, said money market rates were already at an all-time low, adding that it was expected to see a creeping up of rates, as the level of government borrowing increases.
He said: “While the increasing inflationary trends will have investors worry about their returns, the major drivers of stock market activities will be macroeconomic uncertainties and likely further increases in US interest rates. “Furthermore, Q4 earnings being presently released will be another determinant of stock market performance. The bearish trend in the stock market is expected to continue in the near term.”
Speaking with New Telegraph, Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said: “Given the factors that accounted for weak performance in 2015, looking at 2016, you see that a couple of these will still be there, crude price has dropped the lowest in 14 years.
We still see lack of clarity. We have seen a mixed command and control of economy, as being juxtaposed with free market economy that has created some level of absence of clarity when it comes to policy environment.”
The Cowry Asset Management boss said: “Currently, we are seeing a very low interest rate and still we are not seeing a recovery in equity market and that is a paradox because ordinarily when you have low interest rate you should have a rebound in equity investment probably because investors are now on the sidelines, economic outlook is bleak with slow optimism in the market.
“People shy away from making investment but rather keep their financial resources at war chest to ride through such difficult environment. So, that has been a major setback in terms of people’s willingness to invest in equities market. So, unless you see a reversal of that one, the controls in terms of exchange rate have kept away foreign portfolio investors from the market.”
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