Against capital market analysts predict for the stock market closing positive in 2015, the market had continued to be in a prolonged bearish trend, as investors’ networth depreciated by N1.98 trillion in 11 months.
The NSE All Share Index losing approximately 20.31 per cent year to date as at November 27, 2015. Market Capitalization of quoted equities which opened the year at N11.478 trillion, now stand at N9.495 trillion at the end of November.
It would be recalled that the Nigerian stock market ended 2014 as one of the worst performing exchanges with a decline by 20.67 per cent.
The long reign of bears has become a cause for concern to investors. For domestic retail investors the continuous depreciation in stock prices has become a justification for their apathy to investing in the stock market while beginner investors are discouraged to make any attempt at investing. Foreign investors who constitute over 60 percent of participants in the Nigerian stock market are currently playing on the sideline while a few of them with high risk appetite are simply engaged in speculative trading.
The year 2015 has been characterised by a cocktail of macroeconomic challenges that trailed the decline in crude oil prices, lack of clear economic policy framework of the new government and the effect of capital controls in the foreign exchange management policy of the Central Bank of Nigeria (CBN).
It would be recalled that prior to the elections the stock market was down and understandably so because of the tension created by electioneering activities of politicians. Beyond the fact that liquidity was constrained, investors favoured either holding their money in cash or taking them out of the Nigerian market for safety because the predictions was that the elections would be violent with an impact on the sovereignty of Nigeria.
The expectations that greeted the victory of President Mohammadu Buhari at the polls and the humble manner the sitting president then conceded defeat were major drivers for the short rally that followed. Unfortunately this has been short-lived as almost two months after inauguration, the government is yet to form a cabinet or articulate its economic policies upon which investors usually plan.
Also, the foreign exchange management programme of the CBN which is primarily aimed at controlling liquidity in the foreign exchange market.
The thrust of the CBN’s policy is to moderate demand for forex in view of the dwindling reserve occasioned by drastic fall in government revenue due to decline in crude oil in the international market. Unfortunately, the more the Central Bank attempts to curtail demand, the more the gap between the official rate and the parallel market rate widens.
According to the managing director of Highcap Securities Limited, Mr. David Adnori, for investors, especially foreign investors, the stability of the currency is essential for assurance of healthy returns on investment. Therefore as long as the foreign exchange regime remain highly speculative, investors will be on the sideline as they expect a devaluation of the currency to bring bridge the wide gap between the official rate and the parallel market rate.
In a report by Financial Derivatives Company Limited (FDC), stated, “We expect the stock market’s plunge to continue just as international investors await new price bottoms. There will more bargain hunting but the market will recover in January, 2106.”
Adnori pointed out that the outcome of the recent Monetary Policy Committee (MPC) decisions should have impact on the stock market, saying ordinarily monetary policy ought to propel the equities market.
Afrinvest Limited noted that the Nigerian stock market has not been exempted from recent economic challenges as foreign investors sold-down on heightened foreign exchange risk and weaker macroeconomic fundamentals.
Source : Leadership