Nigerian Stocks to Further Succumb to External Shocks This Week

By Modupe Gbadeyanka

The Nigerian Stock Exchange (NSE) will further experience sell offs this week, as uncertainty in the global market weigh on the local market.

This is the view of some financial analysts, who said more foreign portfolio investors will exit the local bourse for better yields outside.

The Nigerian stock market, which was one of the best performers in 2017, having recorded a growth of over 40 percent, is presenting at -17.20 percent.

The local bourse has struggled in most parts of this year as a result of low investor confidence, especially with the political tensions in the land.

Another factor that has contributed to this is the raising of rates by the United States Federal Reserve System this year, which has made investors to exit emerging markets in droves. Another increase is expected to happen next month when they meet on December 18 and 19, 2018.

The decline in the prices of crude oil in the global market has also had an effect on the Nigerian market, which is fuelling speculations that the local authorities may likely devalue the Naira, with the external reserves facing south lately.

Last Friday, the Brent crude oil price went below $60 for the first time since October 2017 to $59 per barrel at the international market, which Nigeria’s foreign reserves depreciated to $41.5 billion on Thursday.

With fears of a possible devaluation, some investors are already selling off their Naira investments, stocks inclusive, to buy up some Dollars in order not to render their money worthless when the unexpected eventually happens.

Analysts at Business Post believe that with above fears in the psyche of investors, the Nigerian stock market will further be under selling pressure this week.

“We do not expect the market to return to the green territory at the close of this trading week. This is because some external factors will continue to weigh on the local bourse.

“We are of the view that the political tensions in the country, as the 2019 campaigns pick up gradually, will also continue to have a negative impact on the market,” Business Post analysts opined.

Last week, the All Share Index (ASI) went down by 1.2 percent week-on-week to settle at 31,678.70 points, while the market capitalisation reduced by N138.6 billion week-on-week to finish at N11.565 trillion.

According to analysts at Cowry Asset, “We expect the local bourse to close negatively (this week) as bearish activity is sustained.

“Speculators are expected to continue scrapping the market for short term gains amid attractive valuations and dividend yields.”

For those at Afrinvest, “We expect an undulating trend in market performance as the impact of bargain hunting in fundamentally sound stocks is expected to be countered by subsequent sell offs.

“However, we maintain our bearish outlook on the market over the near-term.”

“In the short to medium term, we expect the negative performance for the equities market to persist, amidst growing political concerns ahead 2019 elections, and absence of a positive market trigger.

“However, positive macroeconomic fundamentals remain supportive of recovery in the long term,” analysts at Cordros Research said.