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Naira devaluation fails to stop equities slide

By on December 14, 2014

Equities on the Nigerian Stock Exchange have continued to decline in price more than two weeks after the devaluation of the naira.

The move, announced by the Central Bank of Nigeria on November 25, had been expected to among other things discourage foreign investors from pulling out their investments, thereby bringing calm to the market.

Indeed, following the announcement the equities market rallied and for three straight days, both the market capitalisation of the listed equities and the NSE All Share Index closed higher.

From November 25, the day of the devaluation of the naira, to November 27 equities value rose by N274bn or 2.45 per cent.

Reacting to the likely impact of the devaluation on the market, some analysts had said that the market had already reacted to the decline in oil prices and preempted the devaluation of the naira.

Some even suggested that the market was set to rise as foreign investors were not only expected to halt outflow, they would invest more because of the increasing value of the dollar and the low price of the stocks.

Since then, however, the market had succumbed to selling pressure and gone into a free fall.

Specifically, from November 27 to Thursday (December 10), the NSE All Share Index plunged by 3,643.45 basis points or 10.49 per cent from 34,705.48 basis points to 31,062.03 basis points.

This caused its year-to-date return to slip to 24.84 per cent negative.

On its part, the market capitalisation of the listed equities had declined by N1.203tn, which represents a 10.49 per cent drop, from N11.458tn to N10.255tn.

Operators, who spoke to our correspondent, said the build-up to the elections had also made it difficult for the devaluation to have the desired impact as some investors were selling off their shares to fund election campaigns.

Last week, the Managing Director, Highcap Securities Limited, Mr. David Adonri, explained that the losses being recorded could be linked to the continued decline in oil prices and value of the naira.

He said, “Before the devaluation of the naira, the market had already reacted significantly to falling oil prices and it was expected that remedial tools including devaluation would be applied. That was a very proactive action by the market. As such when the devaluation was announced, the market was calm.

“However, the price of oil has continued to decline and that is responsible for the reaction you are seeing,” he said.

Asked about the current market trend, the Managing Director, Prominent Securities Limited, Mrs. Modupe Dada, said the lack of depth in the market was a major factor.

She said, “There isn’t enough debt in the Nigerian capital market, which is why we must reach out to not just the big investors but to the small and medium investors.

“We should own our market. Currently, about 60 per cent of our market is owned by foreign investors. Nigerians own about 40 per cent. That is why we must try to encourage Nigerians to own our market. That way, it would not be so easily affected by what is happening in other market.”

Confirming that there has been a huge sell-off in the market, she explained that the selling pressure was partly due to the build-up to the general elections.

“The few Nigerians involved in the market are at the same time (as the foreign investors) selling off (their shares). Many of them are involved in politics one way or the other. Either they are in politics or they are supporting a politician.

“So, the wider we spread it among Nigerians, not every Nigerian is in politics, the more chance of having a buffer to what is happening.

“Right now, many top investors are selling off their shares just to help out in the political process.”

The current market trend is expected by market analysts to continue into next year, until after the elections.

 

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