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The Nigerian Stock Exchange opened the year strongly, peaking at 45,321.82 basis points in the earlier part. But it is currently one of the worst performing stock exchanges in Africa.

Year to date, the NSE All Share Index is down 17.2%, second only to the BVRM (the regional exchange common to all eight (8) countries of the West African Economic and Monetary Union).

Why has the market tanked 

2017’s performance boiled down to largely foreign investors picking up stocks that were trading cheaper in dollar terms, a trend which continued till the first quarter of this year.

A combination of external and internal factors have, however, pushed the market to the red territory.

On the external part, normalisation of interest rates has led to foreign investors moving funds out of the market. An emerging market dip also led to a flight to safety by foreign investors from frontier markets like Nigeria.

Internally, approaching elections in the country, have led to foreign investors pulling out of the market. Foreign investors prefer to stay on the sidelines, then re-enter when elections are concluded.

The MTN tussle with the Central Bank of Nigeria (CBN) also spooked foreign investors since it pertained to certificate of capital importation. Though the government and CBN have allayed concerns, stating that no other company will be investigated, both parties are yet to reach a settlement.

 Stockbrokers’ experiences

Three stockbrokers spoke to Nairametrics on the condition of anonymity, revealing their strategies for surviving a bear market, as well as shedding more light on the commencement of short selling.

Short selling simply means borrowing a stock which one does not own, to pay back later in exchange for a fee. This is based on the premise that the stock will trade lower at the point it is being returned to the lender.

Coronation Research

At the 2016 Review/2017 Outlook briefing by NSE CEO, Oscar Onyeama, he stated that short selling was open to retail investors. He also announced that the market making policy would be revised for greater effectiveness.

Short selling hitherto had been open to institutional investors only.

For one of the brokers, survival meant living on the gains made in the first half of the year

“Many houses made decent money during the first quarter of 2018, and are using the money to survive during this period.”

On short selling

“Short selling hasn’t really officially begun. But some houses are doing ‘trial runs’ on it. Basically trading in very small quantities.”

To another broker, the downturn is part of the normal boom and bust cycle seen in financial markets.

“Market cycles are a normal thing. Any experienced person watching the market would have known that it would correct later in the year.”

He continues

“Market movements are in three phases: first is the boom stage, the second stage is when the market is still settling and the third when the market is completely down. When the market is still settling in the second stage, we do a bit of proprietary trading.”

On how his firm managing the downtime, he said

“During the market downturn at times like this, as stockbrokers, we focus our attention to institutional clients such as Pension Fund Administrators (PFAs) and high net worth clients. We also focus on ancillary services such as share verification.

“For some of us that have other arms, such as Bureau De Change and Asset Management, we still make a bit of money from those angles.”

On short selling

“Short selling per se has not taken off, but plans are in the pipeline. A few stockbrokers have started trials of it.”

To the third broker, brokers had been through tough times in the last one decade. This bear market was just one of several.

In the brokerage business you earn commission whether investors are selling or buying, so some commission income is still coming in, in spite of the market decline. Clearly, volumes are significantly lower and we aren’t doing as much business as we could have done if the market were bullish.

She continues

In the last ten years, the market has been tough for the most part, so brokers have learnt to deal with this sort of market situation – by putting a tight leash on costs and diversifying into other products. There’s decent appetite for fixed income products and that has provided some revenue to keep the lights on while we arrange one or two block trades.

Has short selling begun?

Naked short selling is still prohibited by the regulators. Though significant headway has been made with regards to the regulatory and operational framework for securities lending, there’s still some way to go as far as getting operators to embrace it, security lenders in particular.

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via


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