Nigerian stocks hit a three month low on Monday as stocks recorded its 9th consecutive day of losses. The market capitalisation fell to its lowest since March 30th 2015. To make it worse, the naira also hit another record low on the parallel market on Monday trading at about N242 to the dollar at the parallel market.
Things couldn’t be harder for Nigerians as they face a double whammy of seeing the value of their investments shrink and their purchasing power gradually become worthless. Many Nigerians may not immediately understand the effect of what is going but for those who do this is like a horror movie. Here are examples;
Investors – For those who have invested in the stock market over N600billion have been wiped out of the value of their investment in just under 9 days. If things continue at the same last week we may well be looking at about N1 trillion. Whilst many Nigerians have avoided investing in stocks, some still do and rely on it to build capital over time. So, even if you are not invested in the market you could have someone close to you asking you for some financial help or outright declare bankruptcy.
Pension Funds – Nigerians have over N4trillion in pension funds. About 10% of those funds are invested in equities market. That is about N400billion at risk of seeing their values getting wiped out by the massive sell-offs. Perhaps some Pension Funds may have sold off in view of the impending risk whilst some may decide to ride the storm. Nevertheless, you should be worried about the state of your financial future.
Inflation – With the exchange rate sky rocketing in the black market coupled with the fuel crisis, inflation rate is about to gallop. Already, inflation rate has been rising since November 2014 and is likely to hit double digits in a couple of months. Rising inflation means cost of goods and services are likely to hit the roof further affecting your purchasing power. Imagine what sold for N100 a few months ago now selling for N150.
Your job – Jobs could also be under threat as the economy continues to face huge uncertainty. Quoted companies, seeing their share price plummet the way it is currently falling will find it difficult to raise capital either from banks or through public offers. Companies also face an consumers with lower purchasing power. Lower purchasing power means they become cautious of their spending and prioritise better. When this happens, companies post lower sales figure and often post losses. These all affects their cash flow and ability to expand thus making them look for ways to survive. One of such ways is to cut cost and what they typically do is downsize.
Travel cost – Schools are currently on holiday and most families must be planning for their summer holidays. Summer this year is likely to be one of the most expensive in years as cost of air travel, accommodation and spending money is probably 35% higher than what is was 6 months ago. A $1000 dollar ticket that cost about N200,000 is now costing N232,000. Multiply that increase by the number of tickets you are buying for your family.To make it worse, the CBN has placed restrictions on how much you can spend affecting your ability to take advantage of discounts when shopping.
School Fees – Those with Children schooling abroad will also find themselves in tough financial waters due to the further depreciation of the naira at the black market. Most of these parents source for forex in the parallel market and have now found themselves in very tough financial positions. Things will only get worse if the naira continues to slide further down.
Interest rates – Higher inflation also translates to higher interest rates on most consumer loans. Personal loans, credit card loans, car loans will only get more and more expensive. This further eats into your disposable income infringing more pain on your finances.
What can change things? Buhari!!