The Nigerian Stock Market has recorded a streak of 7 straight day of losses, the longest losing streak since the first week of May 2015. In fact, the market has not recorded a single gain in the first 10 days of the month of July 2015. So why are things this bad for the stock market and who is to blame? Here is what we think;
The number 1 culprit for the current stock market sell-offs is none other than our under fire CBN Governor. In the last two weeks, the CBN Governor released a rash of circulars that have basically widened the gap between the Interbank and the Parallel market by an incremental margin of about N20. From about N220 before the ’41 circular’, the naira depreciated to close at N240 on Friday. By issuing a circular restricting access to the forex market for 41 items the CBN essentially sent the black market into a spurious speculation spree. This now increased calls for the Naira to be devalued, further exacerbating the situation. In anticipation of devaluation, investors are basically selling off their shares and hoping to come back after the naira eventually becomes devalued.
The President was ushered into power over a month ago amidst a frenzy of optimism and hope. Unfortunately, all we have seen is a deafening silence on the economy that has got potential investors glued to their cash. The president and his team are yet to provide a visible economic direction for the country leaving potential investors with no choice but to stay out of the market. Some who had shares consider his muteness a bad sign and have also decided to sell-off. Investors hate uncertainty.
Greek Prime Minister
The financial crisis in Greece has affected markets around the world as the fear of a Greek Exit from Europe is thought to be a bad sign for the world economy. The Greek Prime Minister Alexis Tsipras had been adamant to accept a deal from Europe and instead took his country on a round of referendum. Unfortunately for him, his country voted in droves to reject the European deal which many Greeks saw as another round of unbearable austerity. Based on that, Investors (especially Foreign Portfolio Investors) have been selling off liquid assets in emerging markets. Many feared for another market turmoil in the event that a spill over effect occurs if Greece can’t sign a deal by Sunday and end up being expelled from the Euro. Ironically, Greece has now tabled a new deal that has now seen them proposing the same measures they vehemently rejected when Europe proposed it. Unfortunately, by the time investors starting buying back shares in Europe and the US, our market had closed and was still bogged down by other issues already mentioned.
The Chinese have been riding a stock market bubble for the last seven years only for them to realise the stock market is not all it seems. In a classic case of what happened to Nigeria in 2009, many Chinese investors had invested in the stock market in a bid to cash in on the bullish run it had been enjoying. Just like Nigerians did back then, the Chinese borrowed massively from banks (margin loans) and invested same in the stock market. However, as soon as confidence waned many people started selling triggering a ripple effect that has now seen them lose over $3 trillion dollars in value in less than a month. We have explained how it concerns Nigeria in this article. However, we add that the fear of a contagion and the economic and political landscape in Nigeria is also a crucial factor that can explain why our markets is experiencing a downturn.