NSE Investors Lose N1.8trn In Two Weeks As Outlook Dims | Independent Newspapers Limited
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NSE Investors Lose N1.8trn In Two Weeks As Outlook Dims

Posted: Jan 17, 2016 at 11:31 am   /   by   /   comments (0)

NSE Investors Lose N1.8trn In 2 Weeks As Outlook Dims

By Bamidele Ogunwusi

Investors in companies quoted on the nation’s stock market recorded a loss of about N1.764 trillion in two weeks or ten  trading days of the New Year following sell pressure that have persisted in the equities market.

As at Friday, the market capitalisation of the Nigerian Stock Exchange (NSE), which gauges the value of listed stocks, stood at N8.086 trillion as against the opening figure of N9.850 trillion recorded at the close of trading in December 31, 2015, accounting for a loss of N1.764 trillion or 17.90 per cent.

Checks by Daily Independent revealed that nine out of the ten trading days witnessed losses. A further breakdown of the decline revealed that the market recorded a loss of N93 billion each on January 4 and 5. The stock market further dropped by N317 billion on January 6. It, however, became bullish on Thursday, January 7, with a gain of N30 billion, being the only day investors got respite.

The stock market reverted to a loss position with N82 billion on January 8, while it shed N233 billion on January 11, N109 billion on January 12 and N320 billion on January 13. Despite the last two days of 2015 witnessing unprecedented bullish rally with a gain of N649 billion, low sentiments in the market worsened following upset from drop in oil price, insecurity, 2015 elections and recapitalisation, among others.

Trading activities at the Nigerian Stock Exchange on Friday sustained a negative trend with the market capitalisation dropping by N250 billion.

The NSE All Share index dipped by 725.94 points or 3.0 per cent to close at 23,514.04 points from 24,239.98 points recorded on Thursday. The volume of shares traded increased by 81.57 per cent due to sales pressure, with an exchange of 476.65 million shares valued N6.16 billion transacted in 4,448 deals.
This was in contrast with 262.52 million shares worth N2.41 billion exchanged in 2,579 deals on Thursday.

Reacting, the NSE’s chief executive officer, Oscar Onyema, said the market trend was a reflection of the nation’s economic condition.
“The market is reflecting what is going on in the real economy,” Mr. Onyema said.

Financial analysts believe that some of these factors sent shock waves to both local and foreign investors and created uncertainty in the investment environment, which led to a retreat on the part of bargain hunters.

Foreign investors have continued to offload Nigerian stocks as equities fell 3.6 per cent on Wednesday to near a three-and-half-year low after reports that naira hit a new trough of N300 to a dollar at the black market, weighed down by sliding oil prices and the central bank’s decision to curb dollar supply to Bureau de Change (BDC) operators.

The Central Bank of Nigeria last week lifted a ban on dollar cash deposits, ending a six-month embargo on banks from receiving dollar deposits from customers, and stopped selling foreign currency to money changers in an effort to maintain its reserves.

“The CBN will only supply the banks with an amount equivalent to the foreign exchange accruing at the CBN to finance priority imports, currently equivalent to about $1 billion per month,” JF Ruhashyankiko, an economist at Goldman Sachs Group Inc. in London, said in a January 12 note.

“As a result, and contrary to the consensus expectation of a devaluation in the first quarter of 2016, a further decline in oil prices is likely to translate into lower dollar supply to banks and a higher shadow exchange rate rather than a devaluation.”

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 to intervene repeatedly to prop up the local currency. The fall in the price of crude oil in the international market is sending economic and political shocks around the world.

The hardest hit has been countries whose economies depend largely on oil for appreciable percentage of their foreign exchange earnings. According to experts, crude oil accounts for about 95 per cent of Nigeria’s foreign exchange receipts. The reality of possible crippling budget shortfalls also stares many oil exporting countries in the face as the priced commodity has hit its lowest price level in four years.

The Chief Executive Officer, Financial Derivatives Companies (FDC) Limited, Mr. Bismark Rewane, had said that it was likely that the current downturn in the nation’s capital market would be sustained in the near term. He said that 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.

“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, expected Q4 earnings will be another determinant of stock market performance. The bearish trend in the stock market is expected to continue in the near term.
“Nigeria’s external reserves are below $29 billion.
The anticipated adjustment in the exchange rate band is expected to slow down the rate of depletion, as the demand pressure eases. However, with oil prices still soft at $37 per barrel, the likelihood of an accretion is slim,” he said.

According to Reuters, currency and stock markets have been hard hit by the persistent fall in crude, triggering a fall in government revenue and exit of foreign investors from the local bourse. Brent crude, which gives Nigeria around 95 per cent of its foreign earnings, fell to $30 a barrel for the first time in 12 years on Tuesday.

“With pressure on foreign reserves and oil prices at $30 per barrel, devaluation is now unavoidable. The issue will be the quantum and methodology,” said Samir Gadio, Head of Africa strategy at Standard Chartered Bank. The central bank, on Monday, stopped the sale of dollars to retail foreign exchange operators, saying that they were using up the country’s foreign reserves for illegal transactions and selling the dollar above the bank’s official rate of N197.

As at Friday, bureaux de change traders sold dollars at a record low of between N300 to N305, citing thin liquidity. The unofficial market accounts for less than five per cent of total dollar trades in Nigeria.