November was an ugly month for Nigerian stocks as investors lost a whopping N569 billion in market capitalization. The All Share Index will close the month -6% lower and hold on to a year to date loss of N20.27%. By the time the month was ended the market had gained for only 4 days this month leaving investors reeling and wondering if there will ever be any respite in sight.
Why the sell-offs?
According to Obinna Ajoku, research analyst at Algor Strategies, “November captured the very essence of the Nigerian capital markets in 2015; a country awakening to the rude reality of a sustained depression in the price of its most priced export-commodity. ” He maintains that the major driver for the sell-offs are “the continuous decline of the price of crude oil (which indirectly impacts the value of naira-denominated assets negatively) and the new economic team who carry a burden of proof of expertise in navigating economic storms on their shoulders.”
Another analyst and stockbroker with TRW Stockbrokers, Rasheed Momoh believes the sell-offs in November is largely as a result of an asset rotation during the month. “There was an asset rotation from the equity market to the bond market.”
Will December be any better?
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As investors look forward to the trading this week many are beginning to question if we will have another Sancta rally in December. The Sancta rally as many analysts have come to believe is mainly driven by asset and portfolio managers who re-allocate their portfolios and sell-off under performing assets for tax reasons. Analysts are as expected divided in their forecast of another December rally.
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According to Rasheed, “there may be a short-term bullish December/January Santa Rally towards the range of 30,000 points – 33,000 points, then later we expect the ASI to return back and test again the long-term support level @ 27,200 points in the intermediate-term.”
He also adds that a reversal in the bond market could also trigger a rally. “we expect the FMDQ (bond) market to enter a bearish trend. The NSEASI chart indicator has broken out from A Descending Triangle chart pattern (Bull Rally) while the Historical table shows the month of December has more Bull sides than Bears”.
Obinna took a rather pessimistic view saying that he doubts “that there will be any bullish months for Nigeria in the near- to medium-term. We may see 3-day rallies at best which should be followed by longer-day price declines but no sustained trend reversals yet for reasons outlined above.”
The market has closed in the green zone for the third straight day this December.
Has the market bottomed out?
Despite the huge sell-offs been recorded most investors do agree that earnings multiples are in most cases at their historic lows. Unlike the crash of 2008, a lot of stocks faced sell-pressures even when they were though to be largely undervalued. Nevertheless, they still view this market as one for the long term and courageous investors. “Any opportunities in the Nigerian capital markets require a very long term outlook and considerable resources of patience. And yes, there are opportunities here. However, investors shouldn’t expect any sustained reversal of current trends yet.” Obinna affirms.