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Investors in the Nigerian equity market sold off most of their shares, on Monday, causing the market to decline by 1.08%, even as the NSE All Share Index dropped down to 28, 533.40 points. This represents a 3-week low.

As it turns out, the bearish sentiment was caused by the Coronavirus which has continued to threaten the Chinese economy. Reuters reported that equity investors on the NSE are afraid that the virus threat could eventually affect Chinese demand for various goods, including raw materials like crude, which Nigeria sells to the country.

coronavirus

Note that China is Nigeria’s major partner, buying a significant portion of the West African country’s crude output which it uses to power its many industries.

The Nigerian economy depends mostly on revenues realized from oil sales to countries such as China. What this means, therefore, is that the Nigerian economy could face serious troubles if Chinese demand for Nigerian crude drops.

Already, the Nigerian economy has faced various challenges, including revenue shortage due to lower oil revenue, high inflation rate, depleting foreign reserves, and even a possible devaluation of the naira. As you can expect, some of these indicators have mostly affected the stock market negatively, especially in 2019. As Nairametrics reported, the NSE All-Share Index ended the year with a 14.6% loss.

However, in early 2020, the Nigerian stock market began to pick up with hopes of better performance. Analysts attributed this to higher oil prices which led to an inflow of revenue into the country, thereby encouraging local equity investors to channel money into buying shares.

[READ MORE: NSE: Investors lose N403.02 billion last week, as bear rules]

Standard chartered

Unfortunately, as the fear rise Chinese demand for Nigerian crude could decline due to the Coronavirus, many investors are worried about what this could mean to their shareholding, hence the sell-offs. There is also the worry over what possible [negative] implications the US ban on Nigerian immigration could have on the Nigerian economy.

1 COMMENT

  1. Of course, ordinarily stock markets thrive on positive vibes about an economy; the kind of vibes which is hard to find in Nigeria at the moment. The poor security situation in the country and corresponding danger to businesses, the high corruption index, rising debt and poor infrastructure, ineffective economic policies as well as over dependence on oil (as pointed out by the IMF on several occasions) have all contributed to put off foreign investors from the country. The current sell offs have nothing to do with the performance of listed firms since many are still healthy and very profitable which is why I expect local investors and portfolio managers to continue to invest in value stocks rather than waiting for foreigners to take the initiative. The doom & gloom prophesied about the Nigerian economy by some foreign rating agencies may still be on course if the Federal government does not implement some drastic changes & policies to truly stimulate the economy. I also believe these forecasts about the Nigerian economy are about 5 years early. Hence, local investors can still take advantage of the current low valuation of value stocks in the short to medium term.

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