The Nigerian All Share Index fell for the second straight day on Thursday to 1.6%. The stock market snapped a 5 day losing streak on Tuesday after shedding a thumping 2.6%. Nairametrics had published an article a day earlier listing out possible events that could bring back the bears. It appears though that one or more of these events are already spooking investors.
Why the market is falling
Drop in Oil price – Crude oil prices fell to their lowest in 7 months on Tuesday as traders fear an increase in supplies around the world. Crude Oil Brent price fell to $45.62. It fell further on Thursday to about $44.82. The recently signed 2017 Budget included a crude oil price benchmark of $44.5 an increase from the $42.5 oil price benchmark submitted by the presidency. Investors have one eye on these prices and worry that it could drop further as Nigeria and Libya ramp up their crude oil output. OPEC struck a deal to cut output effective next month but excluded Nigeria and Libya from cuts. A further drop in price could negatively impact on the country’s revenue projections for 2017.
External reserves – Nigeria’s recent external reserve position is also thought to have spooked some investors. Our reserves have fallen from about $30.9 billion in May 2017 to just above $30.2 billion as at June 21, 2017. A further drop in the external reserve position could trigger another round of depreciation of the Naira. Some analysts also opine that this may have contributed to the increase in OMO auctions embarked upon by the CBN. The CBN has been mopping up liquidity in the financial system believing that the fewer naira we have chasing dollars the better it is for our exchange rate management.
Etisalat – The latest exit of Etisalat UAE due to its failure to meet the obligations of a $1.2 billion loan deal may have also spooked investors. The 13 banks listed as obligors are some of Nigeria’s largest banks. Shares of GTB, Zenith, Access Bank all fell on Thursday.
Nigeria’s external debt profile – Investors are also somewhat spooked by the rising debt profile in Nigeria. The Federal Government has steadily increased local borrowings since 2015 owing the banking sector a combined N4.6 trillion. It also owes the Central Bank of Nigeria another N6.5 trillion. According to the DMO, Nigeria’s external loans were $13.8 billion as at March 31, 2017. In fact, in dollar terms Nigeria’s total public debt is estimated at about $62.8 billion.
While some of these concerns are valid, it may not at this stage materially cause a capital market crash, such as the one witnessed between 2014 – 2016. However, we still maintain that if a combination of the events listed in our Tuesday article does occur, we may be in for another long bearish run.