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Stock market investors lose N528bn in three days

By on November 7, 2014

The downturn in the Nigerian stock market has worsened in the last three days as weaker-than-expected third quarter results by quoted companies and other factors are sending investors closer to panic mode.

In just three days of trading this week, Monday to Wednesday, the market capitalisation of the listed equities declined by N528bn to N11.909tn, while the Nigerian Stock Exchange All Share Index shed 1,591.86 basis points or 4.24 per cent to reach a one-year low of 35,958.38 basis points.

Although investor sentiment was mostly negative in the third quarter of the year, capital market analysts had expected the release of the third quarter results to help to cushion the impact of the build-up to the general elections and lift the market. But that has not been the case as the results so far released have largely failed to impress.

In fact, between September 30 and November 5, the equities value fell by N1.698tn, while the NSE ASI, the Exchange’s flagship index, dipped by 5,251.72 basis points or 12.7 per cent, with some stocks already in crisis.

The Chief Executive Officer, Enterprise Stockbrokers Plc, Mr. Rotimi Fakayejo, explained that the broad sell-off being witnessed in the market had a lot to do with investors trying to conserve value.

“One thing that is very key is that the liquidity in the market is extremely low. The second thing is that the results that are being churned out by the various quoted companies are not interesting,” he said.

He added that the banking sector stocks were being negatively impacted by regulatory policies and the Central Bank of Nigeria’s guidelines.

According to Fakayejo, investors expect the policies to lead to a drop in the profits of the banks. Consequently, many of them are keen to liquidate their holdings.

He said, “We have seen the price of Dangote Cement being dropped from N1,700 to N1,000, and as a result, the revenue of companies in the cement industry is expected to drop significantly because that drop represents about 40 per cent of their revenue. And there is no way they will make enough sale that will be commensurate with the gap or hole that is being created from this price differential.

“So, at the end of the day, stocks related to cement companies are going to have lower returns for investors. The four cement companies that are listed have been on offer and they have been dropping in prices. People are just selling out of panic, trying to actualise what they can for the time being.”

Fakayejo explained that the drop in oil prices was also a factor, adding that the recent repayment of N976bn worth of bonds by the Asset Management Corporation of Nigeria was another factor.

He explained that for AMCOM to redeem the bonds, it had to let go of some positions it was holding in stocks and that “created a lot of pressure on the market.”

The Managing Director and Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, who said the factors leading to the drop were both external and internal, explained that the trend was likely to continue until the second quarter of 2015.

He said, “The factors driving the bear run seem to be worsening – declining oil prices, depleting reserves, termination of quantitative easing, likely further tightening of monetary liquidity by the central bank and a possible two-horse unpredictable presidential election in February 2015.

“These factors are most unlikely to reverse in the last quarter of this year. It is, therefore, most probable that the equities market will not recover from its current loss position this year. The earliest time one should expect a rebound is the second quarter of 2015, subject to the outcome of the general elections.”