Nigerian Stocks closed the month of February with an All Share Index of 26,216.46, the lowest since February 2017. The All Share Index is down 2.33% year to date – a massive reversal from January when it closed positively with a growth of 7.46%, making it one of the best performing stock markets.
The Stocks have now fallen for 7 straight days as investors dump equities despite a spate of impressive earnings and dividend announcements from listed companies. Data from the Nigerian Stock Exchange shows that apart from the Industrial Index, all the major sub-indexes closed the week in negative territory.
Biggest losers: Oando, Unilever and Nigeria Breweries topped the losers’ chart year to date with over 30% losses recorded. In the banking sector, Sterling Bank, Wema Bank, and FBNH led the losers with 29%, 27%, and 23.5% losers respectively. Guaranty Trust Bank hit its lowest since January 2017. About 78 listed stocks posted negative returns in the first two months of the year.
What is driving sell-offs: Intels from Nairametrics Research indicate the sell-offs being witnessed stem mostly from uncertainty in the Nigerian and global economy. Nigerian stocks are still very vulnerable and directly correlated to foreign investment inflows.
The lower the demand for Nigerian Stocks from foreign investors, the higher the losses. Throughout this month, the global economy has had to grapple with the Covid-19 aka Coronavirus as it turned into a global pandemic.
Investors fear the spread of the virus across the world could hamper supply chains and trigger a massive slowdown in growth rates. Markets across Europe, Asia, and the United States also fell sharply during the week. The fall in stock markets has forced central banks across the world to consider cutting interest rates while some governments have declared an intent to provide economic stimulus.
Another major driver for stock sell-offs in Nigeria was the drop in global oil prices falling very much below Nigeria’s oil benchmark. Brent Crude closed the week at $49, stoking further fears of its impact on the Nigerian economy. Nigeria depends on oil to fund government expenditure and keep its exchange rate stable.
The latest GDP of 2.27% released last week shows a faster but still anaemic GDP growth rate for Nigeria. The data shows the economy is still reeling from the 2014 crash in oil prices and there was another indicator that government policies were not spurring economic growth as fast as was expected.
Fewer investment outlets: As stocks skid into losses, Nigerians are left with very limited choices of where to invest their money. The risk-free treasury bills market continues to attract significant investment inflows despite offering historically low yields.
Nigeria real estate market posted strong growth of 4.23% in 2019 but rental yields continue to trail inflation rate. Most Nigerians have resorted to Agro Tech funds as an investment outlet despite their susceptibility to being classified as Ponzis.
Despite the sharp drop in the stock market valuation, listed companies continue to post profits and declare dividends. Some notable companies are declaring dividends at current market value yields as high as 14%. For example, Zenith Bank’s dividend yield topped 12% on last week’s market price.