About two weeks ago, I wrote a piece in which I was exploring if 2015 is set to be a bullish or bearish year for stocks. In that post titled, “Is the NSE Set for a Bullish or Bearish 2015” I explored the bullish and the bearish case for the stock market this year and I provided some points that could help you make educated trading and investment decisions.
When a market is bullish, it means that investors and traders are in line for a profitable year because stocks will record gains. On the contrary, when the market is bearish, traders and investors are in for an unprofitable year because they will record more losses than gains.
However, it seems that the 2015 is set to be a bearish year for Nigerian equities as the Nigerian stock market ends January with a N1.631 trillion loss. According to coverage from Daily Trust, the market capitalization of the NSE All Share Index dropped by 14.21% or N1.631 trillion to N9.847 trillion in January. The benchmark of NSE dropped by 14.70% or 5,095.08 basis points to 29,562.07 points as the bearishness continues.
Uncertainties about the Elections
The first reason Nigerian stocks are taking a beating this year is the volume of uncertainties surrounding the upcoming elections. The electoral atmosphere is charged as we look forward to one of the most keenly contested presidential elections in the history of the country.
For one, there is the latent fear of pre-election, election and post-election crises. Secondly, the latent fear is already causing foreign investors to pull their funds out of the country’s financial markets. Thirdly, the fact that foreign investors are already pulling out their funds from the capital market is precipitating a fear-induced frenzied selling in the market.
Decline in Oil Prices
The second reason that confirms the bearishness of 2015 for Nigerian equities is the persistent decline in global oil prices. The fall in global oil prices is already putting the Nigerian economy at a disadvantage as we obtain lesser revenue from previous oil volume sales. The decline in oil prices invariably means that the government has lesser money with which it can meet its financial obligations; hence, there is bound to be an imposition of austerity measures on the economy.
Devaluation of the Naira
The third reason 2015 is set to be a bearish year for Nigerian stocks is the devaluation of the Naira as the central bank works to prevent market forces from determining the value of the Naira. You will remember that the CBN had hitherto devalued the Naira from 155 to 168 in a bid to make it easier to defend the currency. Nonetheless, the official band has failed to hold even as the Naira trades as low as N200 to $1 on the parallel market.
How to Trade Nigerian Stocks
If you are looking to investing/trading stocks as means to creating wealth in the short term, you are most likely to lose more than you bargained for in Nigerian stocks this year. Short-term investors/traders would do well to avoid Nigerian equities or be prepared to watch the market hawkishly so that they can buy and sell the most opportune moment.
Long-term investors (minimum of 5 years, average of 10 years) might be overjoyed to know that 2015 is a buyer’s market. For one, the bearish nature of the market presents you with a rare opportunity to obtain significant ownership in great Nigerian companies at a fraction of their fair value.