Turkey, US face-off may put NSE at risk

Nigeria’s stock market could face increasing pressure, as tensions between the United States and Turkey continue.

The lira has been in turmoil over worries about the country’s high debt levels, rising inflation, President Tayyip Erdogan’s refusal to consent to an increase in interest rates and tension between the European country and the US.

Erdogan has described his country’s economic problems as an attack; accusing US President Donald Trump of carrying out an operation against Turkey.

US President, Donald Trump, since assumption of office, has taken an America first policy and vowed to rebalance what he felt were trade positions skewed against the country.

Emerging Market investors tend to take decisions collectively. Upheaval in one market tends to have a contagion effect across the other markets. Investors also tend to take a flight to safety whenever uncertainty arrives.

In addition, speculators betting the Turkish Government would let the Lira devalue further, and would liquidate their holdings in other emerging markets.

For emerging market investors, foreign exchange stability is the biggest factor. The crisis in Turkey could have a ripple effect on Brazil and Argentina.

Closer home, the South African Rand has dipped marginally against the dollar to its floating exchange rate.

The Naira has been unaffected by the turmoil because the CBN has maintained its defence of the exchange rate at N360 to the dollar. This has however been at a cost to the foreign reserves.

The apex bank may continue to do so, as long as crude oil earnings remain robust.

While the Naira is largely unaffected by the crisis, the issues in Turkey may worsen an already bearish stock market.

There was a sell-off on the NSE last week largely due to the heightened political tensions between the All Progressives Congress (APC) and Peoples Democratic Party (PDP) in the National Assembly.

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This led to a brief shutdown of assembly complex by men of the Department of State Security (DSS). Lawal Daura, Director General of the DSS was sacked the same day.

The All Share Index was negative on all trading sessions last week, closing, down -2.89%. The index closed in the red today, making seven consecutive days of bear markets. Year to date, the index is down 7.44%

Bluechip stocks such as the FUGAZ banks (First Bank, UBA, Guaranty Trust Bank, Access Bank and Zenith Bank), Unilever and PZ Cussons could see selling pressure this week if no resolution is reached. Foreign investors tend to favour them because of their liquidity.

A continued sell-off in the equity markets could lead to slight pressure on the country’s foreign exchange reserves. The country’s foreign reserves have declined this month from $47 billion at the start of the month to $46.6 billion as at Friday the 10th of August 2018.