Stock market bust offers opportunity for Nigerian investors

From the US and the UK to Nigeria, different markets are experiencing massive decline, threatening global investments.

Looming recession, high inflation, and high-interest rates are making things harder for businesses and individuals. The world seems to be nose-diving into an economic crisis. In one of its reports, the World Bank said that the world might be edging toward a global recession in 2023 and a string of financial crises in emerging markets and developing economies.

This is a result of the simultaneous hike in interest rates in response to inflation by central banks across the world. In a statement in September, the World Bank Group President, David Malpass, said, “Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies.”

Last month, it was reported that the S&P 500 closed at its lowest level in 2022 and the Dow Jones Industrial Average slipped into a bear market as interest rates surged and turmoil rocked global currencies.

Similarly, it has been a rough ride for the Nigerian stock market. The PUNCH recently reported that the Nigerian stock market lost N1.48tn in the third quarter of 2022 as investors’ shifted investment to fixed market instruments.

This loss occurred as the stock market witnessed an increase in interest rate to 15.5 per cent, the third consecutive rate hike and the highest since the MPC replaced the Minimum Rediscount Rates with the Monetary Policy Rate in 2006.

In The PUNCH report, it was noted that the stock market in the first half of 2022 maintained a positive momentum from the prior year in the H1 of 2022 with a return of 21.3 per cent over impressive corporate earnings by listed companies.

From a quarterly perspective, the market mood was bullish in the two quarters with Q1 returning 10.3 per cent higher than 9.9 per cent in Q2.

However, as the market entered Q3 with the MPR hike, investors began to take advantage of the rising yield environment in the fixed-income space while dumping their stocks. The All Share Index, which tracks the general market movement of all listed equities, shed 5.39 per cent to close Q3 on September 30, 2022 at 49,024.16 basis points – from 51,817.59 points at which it opened trading on July 1, 2022.

The total market value of listed companies’ outstanding shares fell by N1.484tn, closing lower at N26.451tn, compared to the opening value of N27.935 on July 1, 2022. The stock market between June and September witnessed investors’ aggressive profit-taking amid the apex bank’s policy to tackle the steady increase in the inflation rate.

The stock market in September depreciated by N429bn or 1.6 per cent month-on-month to N26.451tn, from N26.88tn it opened for trading, while the NGX ASI was down by 1.63 per cent to 49,024.16 basis points, from 49,836.51 basis points it opened for trading.

Speaking with PUNCH on the stock market performance, the Vice President, Highcap Securities, Mr. David Adonri, said: “Losses suffered by the equities market are based on the movement of financial assets from equities, which depend on the micro-economic conditions and monetary policies.

“In 2020, CBN embarked on expansionary monetary policies to expand money supplies, and the equities market appreciated massively.

“But now that we have inflation and the CBN has decided to hike monetary policies, we also see the impact on equities, causing financial assets to move from equities. That was why the market lost in the last month.”

The Chief Executive Officer, Wyoming Capital and Partners, Mr. Tajudeen Olayinka, also said the decline in September was as a result of prolonged repricing of securities across markets and instruments by investors.

“Investors reacted sharply to three quick successions in MPR hike, beginning with 13per cent in May, 14 per cent in July, and 15.5 per cent in September.

“September 2022 was quite spectacular because investors exercised extreme caution by holding back further investment in equity, in reaction to an aggressive rise in inflation (20.52 per cent) in the month of August 2022.

“The headwinds are just too many for the securities market at this time, and more and more investors are becoming increasingly fearful, especially with respect to rising inflation.

“But given the fact of low equity prices, it won’t take a long time before the market gets back on the path of gradual recovery. We should look forward to a long-term bullish market.”

In an email newsletter, the “Rich Dad Poor Dad” author, Robert Kiyosaki, warned that the world would soon experience a historic market slump. According to him, “It’s going to be the greatest crash ever. More wealth is going to get transferred than ever before in history.” However, Kiyosaki recently said that this crash provided buying opportunities for those wanting to build wealth.

“It’s time for the poor to get rich,” he said.