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COVID-19 Update in Nigeria
Daily Parallel Market Exchange Rate – ₦470/$1
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Nigeria spends N29 trillion on recurrent (non-debt) expenditure in last 10 years
Market Views
Nigerian Stocks record worst quarterly drop since 2009
This could be a sign of what is to happen to the economy this year.
A whopping 37% in March 2009 remains the largest quarterly drop the Nigerian Stock Exchange has recorded. It’s a year that will eventually see stocks fall to 33.79%, the worst on record after the 45.7% drop of the disastrous 2007.
Another type of Tsunami is underway and just like in 2010 it is already wreaking havoc on markets globally and in Nigeria. The Nigerian Stock Market lost over 18.75% in March, partly driven by the crude oil war between Saudi Arabia and Russia. The COVID-19 pandemic has also added to the woes experienced by investors culminating in a quarterly loss of 20.3%, the worst since the forgettable experience in March 10 years ago.
The losses spared very few stocks. From brewery giant NB Plc to consumer goods giants, Nestle and Unilever and Telco giant MTN, investors lost billions. Banking stocks also felt the brunt. The FUGAZ, acronym for Nigeria’s top 5 banks skids into losses some as high as 40%. The market rout took no prisoners and defied whatever fundamentals some of the most capitalized companies could boast of. Bluechips stocks are now so cheap some are now priced lower than their earnings per share.
READ MORE: What Warren Buffet will do if he traded Nigerian stocks
Apart from stocks, Nigeria’s Eurobond prices have also fallen drastically in the last month. Bond yields fell to as low as 12% during the month as foreign investors sold down assets in emerging markets including Nigeria. A trader informed Nairametrics that “for now foreign investors just want their money back and have instructed a fire sale of all their assets.”
Nigeria’s 2049 Eurobond Yields traded at a yield of 12.81% as prices fell to $72.94. The coupon rate for this loan about 9.2%. The shorter ended 2021, 28th January bond yields sold for $97.29 with a yield of 10.09%. Bond yields are inversely correlated to their underlying prices. The lower the price of a bond the higher the yields. A falling bond price is often associated with higher risk consideration.
The effect of the sell-offs could also be felt on the exchange rate. Nigeria’s naira first dropped to N380 at the I&E window where foreign investors buy and sell dollars before falling to as low as N390/$1/. This forced the central bank to devalue the naira to N380 for BDC’s. The naira’s one-year forward price, which gives an indication of where the currency could trade in a year’s time, fell about 11.3% against the dollar. The non-deliverable forwards market in London priced the naira at N515 to the dollar in a year’s time while naira futures contracts of the same tenor were quoted at N385.
READ ALSO: COVID-19: NSE extends time for submission of audited financial statements
The Nigerian Stock Exchange is often the bellwether for the economy and going by the extent of the losses recorded during the quarter it is nearly inevitable that we will avoid a recession. The effects of the COVID-19 lockdown is likely to get things worse just as oil prices fall below the $20 support level. This suggests we may not have seen the worst just yet.
A further devaluation could occur as the oil price war ratchets up. Nigeria’s inflation rate situation will likely get worse amidst a dwindling purchasing power. As more people struggle, slowly recalibrating their income and spending patterns, businesses will struggle to keep up with sales piling up unsold inventories. Soon, the solid fundamentals recorded in 2019 will disappear instigating a further stock market rout. Borrowers could also start to default on their loans sending non-performing loans back to levels seen in 2016.
This is the worst-case scenario. It could get better but only when oil prices rebound and the Coronavirus is defeated.
Market Views
Bitcoin, Gold, leading Stocks tumble on strong U.S dollar
The U.S dollar index gained 0.6% on the day to settle at 90.77.
The dollar was fired up at the last trading session of the week crushing its major currency rivals, Bitcoin, Gold, and leading global Stocks.
The U.S dollar retained its safe-haven status on the account of the U.S Dollar Index settled remarkably higher than a basket of six other global major currencies.
The U.S dollar index gained 0.6% on the day to settle at 90.77.
READ: U.S Central Bank leader says no rush into crypto dollar
What this means
Investors are piling to the U.S dollar after receiving worrying U.S economic data. Retail sales in the world’s largest economy were off 0.7% last month, the third straight drop.
- Such upsides seen in the greenback’s value saw gold at the expense of a charging dollar whose strength astonished metal traders, saw gold futures losing as much as 1.16% to settle at 1,829.90/ounce
- Also at press time the flagship crypto asset, Bitcoin traded at $35,756.99 with a daily trading volume of $70 Billion.
- Bitcoin is down 7.38% for the day.
READ: Google, Facebook, Twitter stocks drop, investors ponder if big techs have become too powerful
Also, the world’s biggest stock market by market volume and liquidity suffered heavy losses, as data showed the Dow Jones Industrial Average plunged by 0.57% to settle at 30,814.26 index points, the S&P 500 lost about 0.72% to settle at 3,768.25 and the Nasdaq Composite fell by 0.87% to close at 12,998.50 index points.
The greenback was an outlier at the last trading session despite drops seen in U.S bond yields associated with the benchmark 10-year U.S. note, whose resurgence in the previous week had been the catalyst for the U.S dollar comeback.
READ: Gold on a grand slam win, gains $40 per ounce
What they are saying
Milan Cutkovic, Market Analyst at Axi, in an explanatory note to Nairametrics, spoke on fundamentals supporting the rebound of the U.S dollar;
- “Many investors continue to stand on the side lines. President-elect Joe Biden unveiled his US$1.9 trillion stimulus plan. There were no major surprises, and a lot of it was already priced in.
- “Investors are now focused on how quickly the Biden administration can implement their plans and support the ailing US economy. Although Biden will be inaugurated on Wednesday, the second impeachment of Donald Trump might overshadow the first few weeks of his term.
- “Investors are also increasingly confronted with the reality that the pandemic is still far from being under control, despite the significant progress that was made in the past few months, and several COVID-19 vaccines already on the market.”
READ: Silver surpasses three-week high, joins Bullish momentum
Bottom line
Investors are increasingly confronted with the reality that the pandemic is still far from being under control, thereby flocking back to the safe-haven currency despite the significant progress that was made in the past few months, and several COVID-19 vaccines already on the market.
Market Views
Google, Facebook, Twitter stocks drop, investors ponder if big techs have become too powerful
Some powerful politicians have publicly decried the role these tech brands are having in censoring speeches.
Leading U.S tech stocks including Facebook, Apple, Twitter, Amazon, and Google experienced record sell-offs on growing global sentiments that big tech companies are getting out of control.
Such macros weighed heavily on these stocks as evidenced in Monday’s trading session performance for these tech stocks.
READ: Top 10 stockbroking firms traded stocks worth N1.17 trillion in 2020
At the end of Monday’s trading session,
- Twitter lost about 6.41%
- Facebook down by 4.01%
- Apple dropped 2.32%
- Google (Alphabet) fell by 2.31%
- Amazon down by 2.15%
READ: Opera launches Opera For Business and announces new partnership with Google My Business
Also, some powerful politicians publicly decried the role these tech brands are having on censoring speech, as senior lawmakers in France and Germany, including German Chancellor Angela Merkel, voiced their concerns.
The fall is largely attributed to record sell-offs from investors on account of these tech brands’ decision to permanently ban one of its most popular and powerful users, President Trump, and other leading voices from their social networks.
READ: 5 Nigerian startups selected to join 7 others at the Africa Tech Summit Connects (ATS)
What this means
Stock experts further anticipate such a move could deprive fast-rising tech brands of one of their best traffic-generators, as well as risking alienating some people who share the opinion that tech brands like Twitter, Google, Facebook have become too powerful.
Milan Cutkovic, Market Analyst at Axi, in a note to Nairametrics, spoke on the prevailing macros disrupting U.S stocks at least for the near term.
- “Fears of a global trade war have weighed multiple times on markets during the past few years. While concerns remain, the risk of trade tensions escalating has declined with Biden entering the White House soon.
- “While the US-China relations will remain complex, they could warm up somewhat after four turbulent years. Meanwhile, tech giants, Facebook and Twitter, have found themselves in a political crossfire by blocking US President Trump from their platform, which also weighed on the NASDAQ index.”
READ: Banks Vs Fintechs – Who should be Afraid? (Part Two)
What to expect: The question of whether big tech has become too powerful is likely to lead to some heated discussions in the coming weeks.
Market Views
Twitter drops 8.5% in early trading over President Trump ban
Record sell-offs from investors on account of the social media giant’s decision to ban, one of its most popular and powerful user, President Trump.
An American leading social media company, Twitter, saw its shares drop as much as 8.5% at the start of Monday’s trading session on the New York Stock Exchange.
READ: Mike Pence to go against Trump, announces he will attend inauguration
The fall is largely attributed to record sell-offs from investors on account of the social media giant’s decision to ban one of its most popular and powerful users, President Trump, permanently from its social network.
READ: Co-founder of Floyd Mayweather-backed crypto sentenced to prison for fraud
Stock experts further anticipate such a move deprives the fast-rising tech brand of one of its best traffic-generators, as well as risking alienating some people who share the opinion that tech brands like Twitter, Google, Facebook have become too powerful.
READ: Facebook suspends Donald Trump indefinitely
The tech brands are trying to stay away from accusations that they helped fuel the violence during the storming of the Capitol in Washington some days ago by a mob sympathetic to President’s Trump election loss.
