Falling oil price triggers over N1tr sell-off in stock market
• Investors lose N1.081trillion in three days
• Analysts caution against panic trading
No respite yet for Nigerian investors as over N1 trillion has been wiped off from the stock market in just three trading days amid growing fears of coronavirus spread and declining crude oil price
This is just as analysts have cautioned against panic selling of blue chip to avoid crystallising losses, insisting that the stocks would recover once the systemic risk fades away.
Specifically, the market capitalisation of listed equities, which opened on Monday at N13, 365 trillion, depreciated by N1, 081 trillion, to close at N12, 284 trillion yesterday.
Also, the All-Share Index, which measures the performance of quoted companies, plunged by 2, 074.79 points or 8.8 per cent from 25,647.54 to 23,572.75.
A breakdown of trading activity on Monday showed that only one stock appreciated in price while the All-Share Index (ASI) decreased by 632.07 absolute points, representing a dip of 2.41 per cent, to close at 25,647.54 points, largest decline since September 12, 2019.
Similarly, the overall market capitalisation size lost N329 billion to close at N13.366 trillion.
The downturn was impacted by losses recorded in medium and large capitalised stocks, among which are: Nigerian Breweries, Stanbic IBTC Holdings, Guaranty Trust Bank, Zenith Bank and Conoil.
The All-Share Index (ASI) decreased by 1,258.88 absolute points, on Tuesday, the largest single-day decline since falling 8.4 per cent on March 19, 2010.
This represents a dip of 4.91 per cent to close at 24,388.66 points. Similarly, the overall market capitalisation size shed N656 billion, to close at N12.710 trillion.
At the end of transactions yesterday, investors lost N426 billion in value due to losses recorded in high capitalised stocks, especially Nestle Nigeria, Dangote Cement, Conoil, NASCON Allied Industries (NASCON) and Zenith Bank.
Analysts linked the massive sell off to fear of a likely devaluation of the Naira, as well as the planned downward review of the 2020 budget to reflect the new economic realities, given that oil is already trading below the budget benchmark of $57 per barrel, oscillating between $34 and $45.
However, they argued that the possibility of rebound at this point is high considering the fact that equity prices are selling at a discount, in addition to the prevailing high dividend yields on the exchange.
The Chief Research Officer of Investdata Consulting Limited, Ambose Omordion, “The continued inconsistencies in the policy of the government and its economic managers have weighed down investor confidence as stocks doubled their losses due to fear and a lack of economic policy direction.
“The lack of coordination between the monetary and fiscal authorities is already playing out in the macroeconomic indices and policy formation, however, It is obvious that this current market situation will not last after this panicky sell down that just hit the global and local markets.”
He argued that the current trend is expected to attract funds and portfolio managers as many fundamentally sound equities are selling at their new lows.
According to him, “We expect the losses to subside as funds may flow the way of stocks on low price attraction and high dividend yields that cannot be resisted by smart money, as more audited corporate earnings hit the market, going forward.
“Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend..” he said.
The Head of Research, FSL Securities, Victor Chiazor said: “ The Nigerian market has reacted negatively to the significant drop in oil prices due to fears around the country’s ability to balance its budget and possible devaluation of Naira.
“However, taking a cue from the year 2015/2016 when we saw a significant drop in share prices on the Nigerian stock exchange as a result of the drop in oil price and the currency devaluation, we expect the market to immediately recover once a cure or vaccine for corona virus is discovered or oil prices recover.
“We recommend that investors with patient capital take advantage of the low prices in the equities market while we advise against panic selling of blue chip and fundamentally sound companies to avoid crystallising losses,” he said.