Nigerian stocks are struggling to rally in the face of a deteriorating macro environment leaving investors with the prospects of two consecutive years of losses, not seen since 2009.
Stocks are down 8.45 percent year to date after sliding by 16.14 percent in 2014.
Macro headwinds for stocks include slowing growth, rising inflation, muted government spending and a tapped out consumer.
“Investor’s sentiment in the market has been weak arising from short-to-medium term macroeconomic headwinds and uncertainty in the political space. The din in the FX market and uncertainty relating to the near term direction of the Naira has further worsened investor’s sentiment,” said Kayode Omosebi, a research analyst at United Capital Plc.
Nigeria’s currency the naira touched an all time low of N235 per dollar in the parallel market last week as dollar demand surged on the Central Bank’s move to curb FX supply for some category of imports.
The CBNs dollar reserves are falling amid a 40 percent slide in oil prices, which has crimped government spending and erased the current account surplus.
Nigeria’s Consumer price inflation rose for a fifth month in May to 9 percent and interest rates are at a record high 13 percent.
Growth in the first quarter of 2015, slowed to about 4 percent, on an annual basis compared with 5.9 percent a quarter earlier.
Renaissance Capital, an African focused investment bank thinks it could fall to 3.4 percent for all of 2015, the slowest rate of economic expansion in 15 years.
“When we consider the impact of low oil prices and paralysing polls on GDP by expenditure (consumption, fixed investment, net exports) in 2015, we see greater potential downside to Nigeria’s growth,” said Yvonne Mhango, RenCap’s Sub-Saharan Africa Economist in an April 14thnote.
The Nigerian bourse’s negative return for 2015 compares with the 5.70 percent year to date gain in South Africa’s FTSE/JSE All Share index.
Investors have sold stocks in the two largest sectors – industrial goods and banking – in Africa’s second largest stock market, adding to the bearish trend.
Dangote Cement the largest listed firm is down -16 percent year to date, while mid tier lender Diamond Bank is one of the worst performers, down -27 percent this year.
Nigerian Pension funds with assets in excess of N4 trillion are also underweight the stock market further making it difficult for a sustained rally to occur
Latest data from the regulator National Pensions Commission or PENCOM show Pension Fund Administrators (PFA) held N2.8trillion in Federal government securities comprising of bonds (N2.3 trillion) and treasury-bills (N497.7 billion) as at December 2014.
The PFA assets invested in domestic ordinary shares fell to 11.79 percent in December, from 12.95 percent in October, latest data from PENCOM website show.
Foreign Portfolio Investment transactions at the nation’s bourse decreased to N79.77 billion (about $0.41 billion) in May 2015, down 23.26 percent from April 2015.
Foreign investors are on the sideline and there’s a bandwagon effect by local investors as no one is certain if stock prices have fully bottomed out, according to Omosebi.
“We think the market will dip further in the month of July. We would expect to see speculators taking more short term position in the market,” Omosebi said.