Nigerian Equities Fall To 8-Year Low!

The Nigerian Stock Exchange (NSE) All-Share Index (ASI) Wednesday fell by 0.16 per cent to close at 19,829.29, indicating an eight-year low. The ASI was last at this level in November 2003.

Reuters quoted market operators as saying that the decline resulted from jittery foreign investors who are snubbing frontier markets, as well as local fund managers shifting attention to bonds.

The ASI has fallen 19.46 per cent so far this year, dragged down by the banking and oil sectors, as yields on equities become less attractive compared with other asset classes.

Checks revealed that the NSE Banking Index, which measures the performance of the banking sub-sector, and NSE Oil & Gas Index, which measures the performance of the petroleum products marketing sub-sector, have suffered a year-to-date dip of over 33 per cent apiece.

Fund managers have been switching into government bonds in recent months in search of higher yields and boosting liquidity in the domestic debt market as stocks continue to falter. Yields on the 3-year government bond, Nigeria's most liquid paper, are around 15 per cent. 

"Why will any investor stake his money in stocks for a 5-7 per cent yield, while T-bills offer around 16 per cent?"  Managing Director of Lagos-based Crusader Sterling Pensions, Mr. Adeniyi Falade, told Reuters. He disclosed that his funds had cut exposure to equities to under 10 per cent from 15 per cent a year ago. Nigeria's equity index rose above 65,000 points in 2008 to become the best performing stock market in the world, but worsening global economic conditions and domestic banking crisis have shaved around 70 per cent off its value since then.

Falade said most local funds had parked the bulk of their cash in fixed income instruments but said his fund was still backing names like GT Bank and some multinationals including Guinness on track record and governance.

Stockbrokers under the aegis of Association of Stockbroking Houses of Nigeria (ASHON) had said the persistent decline in the market would only be checked  and if the problem of  debt overhang was  resolved and  banks resumed funding based on new guidelines on margin loans. The President of ASHON, Mr Rasheed Yussuff,   said the new guidelines for margin loans  would be effective if supported with appropriate funding.

He said: “With banks not funding the market, local investors almost wiped out and foreign investors having their problems, funding the market has become a critical issue. The immediate resolution of debt overhang problem plaguing most of the members is the key condition precedent to revitalising the Nigerian capital market.”

The Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, recently said the Federal Government, through the Central Bank of Nigeria (CBN), was considering forbearance on debts owed by stockbrokers as way of bailing out the stock market.

Comments

  1. I believe that the plans that Dr. Iweala have for the stock market is really robust and would make the market bounce back.

    ReplyDelete
  2. @ Anonymous 17:22. I pray her plans works out positively and in time too.

    ReplyDelete

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