Something remarkable happened to the market capitalization of stocks on Monday the 18th of January 2016. But before then, let’s look explain whet the term Market Capitalization means as it is one we will be using very often in this article.
The stock market capitalization is basically an aggregate of the market value of all the stocks quoted on the Nigerian stock exchange. When it rises, it is assumed that the stocks in general gained more than they lost and when it drops it is assumed that stocks in general lost more than they gained.
On 18th of January, 2016, the stock market capitalization dropped below the N8 trillion mark for the first time since 2012. Within 18 days of the new year investors were already staring at a staggering loss of over N2 trillion naira in the stock market. The stock market opened the year at about N9.7 trillion only to close 17 days later at N7.7 trillion..
On that day alone, stocks lost about N700 billion in market value! Investors were basically tired of the government and could not afford to remain in a market that was so full of uncertainty. The Central Bank had on the Friday before, issued a set of circulars that had basically broken investor patience. It started with the CBN issuing a circular confirming that it was no longer going to sell dollars on a daily basis. Subsequently, commercial banks started sending out emails to customers informing them that there will not be withdrawn limits to the usage of debt cards abroad. This was all on the local front. The icing on the cake happened several markets away from our shores as the world woke up to hear that the price of oil was now about $27.
To get a clear idea of what happened stocks like GT Bank had plummeted to as low at N13. Seplat was N168 and Dangote Cement 123. Stocks had basically fallen rock bottom and will remain in the doldrums for much of the first quarter of the year.
These all currently seems like a very long time when you look at the price of stocks today. Market Capitalization is now above N10 trillion and stocks like GT Bank, Seplat and Dangote Cement now trade for N22, N350 and N185 respectively. Some really smart investors are not making a killing after months of endurance and focus. For these folks they are now making money for the exact same reason why they lost earlier in the year.
- Firstly the price of oil is now above $40 and crossed the $50 mark
- The Buhari led Government has now removed fuel subsidy allowing market forces to determine the price of fuel. The result is that the fuel queues are no longer there.
- Despite rising inflation and an imminent recession, the market believes the worst is over as investor sentiments is now turning positive
- Another positive news was the fact the emerging market index (MSCI) refusing to ban Nigeria, An index basically is a selection of stocks tracked by a service provider. The stocks are put in a pool based on identified risk weighting and then tracked and measured as price fluctuates.
- Perhaps the mother of them all, floating exchange rate recently being implemented in Nigeria has been the single most portent force in driving stock market values up again.
- Investors believe this is the last piece of the puzzle that will open the floodgates again for foreign investors to return to Nigeria.
- The idea basically is that if you buy now that stocks are cheap, it is expected that they will rise by the time foreign investors start to invest in Nigeria again.
- However, it is expected that there will be a long list of buyers and sellers along the way before we get to the buyers who eventually sell to the foreign investor.
- Those making a kill currently are the goons who took a bet on stocks earlier in the year when they were very cheap. Now they are selling at a high and cleaning out.
- As Warren Buffet once said, Be greedy when others are fearful and fearful others are greedy.