13 August 2018 : Once upon a time, the Nigerian stocks were skyrocketing all set to reach the stratosphere, suddenly a meteor called “ Political Instability” hits the Bourse and it comes plummeting down to crash and hit rock bottom. The index fell 2% on Friday last week making the ASI reach 35,446 points, resulting in a whopping 21% decline since its glorious January days ( specifically January 19th- NSEASI’s 2018 high). Consequently the stock market flaunts a negative YTD return of 7.3% ( as of end of day Friday), which is the lowest amongst its peers ( South African markets YTD is -2%, while the Egyptian market’s YTD is -0.9% and Kenyan market’s YTD is 0.9%, as of end of day Friday )
In technical terms a bearish market is when the market declines by 20% from its recent peak. But, doesn't look like the bears plan to give up their slaying anytime soon.
The paradox is that, despite the rally in oil prices ( Brent crude oil is up 9% to $73 per barrel YTD at Friday), improving macro-economic fundamentals and incredible H1’18 results by the biggest listed companies, the market nosedived, mainly fueled by investors shunning the emerging markets, Nigeria in particular , on the back of heightened political instability.
One says that sadness reduces when someone else is also going through he same thing, In that regards the Johannesburg Stock Exchange ( JSE ) is the only other African equity market which shed 24% since its February peak, and has now been rocking the Bear trend.
Investors have also lost hope and side stepped the cheap valuation of the Nigerian stocks, presently trading at 10 times the earnings compared to the MSCI frontier market average of 14.05%, South Africa’s 17.68%, Egypt’s 16.08% and Kenya’s 14.39%.
As we have already mentioned before foreign investments are slumping, as investors are withholding their investments till after the 2019 elections.
Although, if played smartly, these cheap valuations could prove to be good entry points to cherry pick fundamentally sound stocks for the long term till when the political tensions abate and the stocks make their recovery.
Reporting for EasyKobo on Monday ,13 August 2018 in Lagos, Nigeria
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