The Nigerian stock market has reversed all the gains it made earlier this year. Currently, the market has turned negative and it appears this might last for some more days if not weeks.
From what looked like a mini sell off in early May, the bears proceeded to rout the stock market wiping out all the gains made this year. Now, word on the street is that we are in for an uncertain ride and we might just have turned into the dangerous corner.
What the street is saying
Several analysts reviews point to a panic sell off by foreign investors looking to pull their cash out of emerging markets like Nigeria.
This is connected to the American First policy of the United States as demonstrated by the recent war of words between the US and it’s traditional allies in Europe, Canada and Mexico.
The US President Trump appears to be spoiling for a trade war and Europe doesn’t seem to be backing down. The potential consequence of this bickering is unknown and it’s thought to be spooking the market.
The street also believes funds are flowing out through South African investors and some in Europe and indication that they are being cautious and acting on orders from above.
There is also fear that the country’s policy of “subsidizing” fuel is a pandora box about to blow up. Some believe the CBN may be forced to devalue slightly just to bolster its cash revenue.
The signs are there
A look at the cross section of Stocks that lost in May also point to this assertion. Out of the over 70 stocks that lost ground during the month over 20 of them are Bluechip stocks. These include stocks traditionally bought by foreign portfolio investors.
The likes of Nestle, Unilever, Zenith Bank, GT Bank, Dangote Cement, Dangote Flour all closed lower in May.
The streets believe it is probably time to take a break from any major moves as caution is preferred at this time. Whilst cherry picking opportunities abound, the suggestion is that stocks might still fall lower.
Foreign investors play a major role in how stable our market is and when they start to leave out of fear then we are in a dangerous corner.
To get out will mean a serious intervention and one will hope this starts sooner rather than later. For example, if the recent war of words between the US and Europe looks like just a regular banter then we may just get out of this unscathed.
We believe things pan out as normal and the fear will blow away. However, we are rather cautiously optimistic and won’t risk doubling down on any purchases.