The Nigerian All Share Index closed on Friday with a total market capitalization of N8.8 trillion. It closed a brutal month of November with a market capitalization of N8.6 trillion recording only two days of gains in the entire month.
The market has lost over N6 trillion in market valuation since the start of the fall in the price of crude oil in July 2014. However, it appears the last 18 months may have been one of the worst since the current economic crisis.
As the chart above depicts, the Buhari administration came into power at a time when the market was at N11 trillion and about N4 trillion off its 5 years high of N14.2 trillion (ironically achieved in July 2014 under GEJ and just when the price of oil has peaked).
The GEJ administration before it had presided over one of the greatest bullish runs not seen since the stock market bubble of 2007, until the drop in oil prices. The drop in oil prices ushered in the bear run that will see the former president hand over a stock market with a market cap of N11 trillion still about N3 trillion more than the N8.2 trillion he met upon his re-election in 2011. And then Buhari…
President Buhari has been in power for about 18 months now and has so far presided over a bearish run that has seen about N3 trillion wiped out of the market capitalization of Nigerian Stocks.
Supporters of the president may look to 2008/2009 when the stock market lost over N6 trillion in market capitalization under Late President Yaradua. But that was a market that was over valued, over soled and highly leveraged. The current market is neither of that and I dare say the opposite. What we face is now economic crisis precipitated by a drop in crude oil prices and a depletion of external reserves. Two problems that can be solved if only the government provided investors with more assurance that they had a plan to turn things around and that their plans was private sector driven.
And as things stand, things could get even worse. The exchange rate is as fragmented dissuading foreign investors from coming back into the country. Companies are reporting declining revenues, drop in profits and some even deep in losses. Jobs are getting lost and consumer spending is at an all time low.
The implication of this for the stock market is that we are yet to see the end of the blood bath. So long as this administration continues with its policy of mishandling the exchange rate, borrowing at double digits, stifling competition and distorting market forces, business will continue to groan and the market will post losses.
Of course, there are a few stocks out there with good potentials and indeed most are undervalued. However, it is difficult to separate value from price especially when the forces that determine prices are dislocated from value.
For those contemplating whether to return to the stock market, what we say is be careful. The month of December typically attracts the bulls. But come January, the sell off typically ensue. The chart below confirms it.
For two years running, the market has posted negative return in January. We don’t see anything in the 2017 budget that will provide an impetus for market rally. In addition to that, the market has posted a negative return 1o months out of the 18 months Buhari has been president. Burarinomics has been bad for the stock market pure and simple.