"Nigerian stocks go from hero to zero"

" Nigerian stocks go from hero to zero \r\n\r\nAdemola Lookman, a 30-year-old Nigerian engineer, was a happy man in June. His local stock portfolio was up by around 18 percent, thanks to a collection of consumer goods and banking stocks he held.\r\n\r\nThe Nigerian stock market seemed to have been eluded by the global stock market downturn.\r\n\r\nFast forward five months and Lookman\u2019s portfolio is down by 2 percent.\r\n\r\n \u201cMy investment banker said the worrying rise in inflation finally caught up with the stock market with interest rates having to go up,\u201d he told BusinessDay.\r\n\r\n \u201cI don\u2019t have any regrets, however, as I am a long-term investor who is in the market for the long haul; so I\u2019m not bothered by these types of movements,\u201d Lookman, who has been investing since he was 19 years old, said.\r\n\r\nA blockbuster 21 percent average return in the first half of 2022 made Nigerian stocks one of the best performers, sidestepping a global stock market downturn.\r\n\r\nAmong the 10 biggest stock markets in Africa, nine were in negative territory at the end of June 2022. Ghana and Egypt were tied with negative returns of 32 percent while Kenya was down by 30 percent, erasing $6.5 billion of investors\u2019 funds. South Africa, Botswana, Morocco, Mauritius and Tanzania all closed the half-year period with losses.\r\n\r\nEmerging equities posted their largest first-half drop since the 1998 Asian financial crisis, with the MSCI benchmark down 17 percent at the end of June, while China, the index\u2019s single biggest component, was down 12 percent.\r\n\r\nThe fortune of Nigerian stocks which was very different at the time has however quickly changed.\r\n\r\nThe Nigerian stock index was up 4.16 percent year to date as of November 18, down by nearly 2,000 basis points.\r\n\r\nThe decline is after a raft of rate hikes by the Central Bank of Nigeria (CBN) cut short what was a bull run by stocks and triggered a rotation of capital from the equities market to higher-yielding bonds.\r\n\r\n \u201cThe stock market\u2019s loss has been the bond market\u2019s gain,\u201d said Ayodeji Ebo, managing director of Optimus by Afrinvest, an investment bank. \u201cThe interest rate hike by the CBN has led to a reversal of flows from stocks to bonds.\u201d \r\n\r\nThe CBN has hiked interest rates by a combined 400 basis points in 2022, starting from a 150 basis points hike in May to 13 percent from 11.5 percent. In July, the apex bank struck again with a 100 basis points hike to 14 percent before topping that with another 150 basis points hike in September to 15.5 percent.\r\n\r\nThe rate hike, which the CBN hopes will help tame rising inflation, has taken borrowing costs to the highest level since 2006.\r\n\r\nTypically, interest rate hikes tend to have a knock-on effect on stocks. When rates rise, stocks fall, as investors price in the higher cost of borrowing for companies.\r\n\r\nIt wasn\u2019t until July, the month of the second interest rate hike, that the stock market started feeling the impact of the rate hike.\r\n\r\nThe stock market index dipped by 2.82 percent as of the end of July 2022 and would remain bearish till date. Between August and September, the market dipped by 5.6 percent as yields in the bond market continued to rise.\r\n\r\nBy the end of October, the Nigerian Exchange All Share Index had declined by another 10 percent, wiping out most of the gains recorded in the course of the year. The oil and gas index, which had been buoyed by high oil prices, saw a rare dip of 4.77 percent in the period, even though it was still up by 40.29 percent on a year-to-date basis, conveniently outperforming the broader index.\r\n\r\nExpectations of yet another interest rate hike by analysts polled in a BusinessDay survey may mean there\u2019s more pain to come for stocks.\r\n\r\nThe Monetary Policy Committee enter a two-day meeting on Monday (today), with concerns about rising inflation and an embattled naira weighing on their minds.\r\n\r\nThe outlook for higher interest rates ahead of the Nigerian presidential election next February also presents itself as a negative for the stock market.\r\n\r\nWhile some analysts think this may be an opportunity to buy the dip, others are careful not to advise investors to catch a falling knife.\r\n\r\nMost analysts polled in a BusinessDay survey said the stock market may continue to struggle till at least the second quarter of 2023.\r\n\r\nThe lack of economic reforms and an acute dollar shortage that has blocked foreigners from the market have also negatively impacted Nigerian stocks.\r\n "

"Nigerian stocks go from hero to zero"

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