Driven by COVID-19 pandemic and the oil war between Saudi Arabia and Russia, Nigerian stock market lost over 18.75 per cent of its value, the biggest drop in since 2007.
From brewery giant NB Plc to consumer goods giants, Nestle and Unilever and Telco giant MTN, investors lost billions.
Banking stocks also felt the brunt. The FUGAZ, acronym for Nigeria’s top 5 banks skids into losses some as high as 40%. Bluechips stocks are now so cheap some are now priced lower than their earnings per share.
Apart from stocks, Nigeria’s Eurobond prices have also fallen drastically in the last month. Bond yields fell to as low as 12% during the month as foreign investors sold down assets in emerging markets including Nigeria.
The effect of the sell-offs could also be felt on the exchange rate. Nigeria’s naira first dropped to N380 at the I&E window where foreign investors buy and sell dollars before falling to as low as N390/$1/.
This forced the central bank to devalue the naira to N380 for BDC’s. The naira’s one-year forward price, which gives an indication of where the currency could trade in a year’s time, fell about 11.3% against the dollar.
The non-deliverable forwards market in London priced the naira at N515 to the dollar in a year’s time while naira futures contracts of the same tenor were quoted at N385.
The effects of the COVID-19 lockdown is likely to get things worse just as oil prices fall below the $20 support level. A further devaluation could occur as the oil price war ratchets up. Nigeria’s inflation rate situation will likely get worse amidst a dwindling purchasing power.
As more people struggle, slowly recalibrating their income and spending patterns, businesses will struggle to keep up with sales piling up unsold inventories. Soon, the solid fundamentals recorded in 2019 will disappear instigating a further stock market rout. Borrowers could also start to default on their loans sending non-performing loans back to levels seen in 2016.