By Chiwendu Obienyi and Chukwuma Umeorah
The global financial market literally flew into the storm on Monday, necessitating major sell-offs and heightening uncertainty for investors on the Nigerian Exchange Limited (NGX).
Japan’s Nikkei 225 was the worst hit as it suffered its worst day since 1987, dropping by 12.4 per cent amid fears of a potential recession in the U.S economy.
The meltdown, sparked by a weaker-than-expected U.S. jobs report, caused ripples across global markets. Taiwan’s Taiex saw its worst day in 57 years, plummeting by 8.4 per cent, while over $1 billion was liquidated from the cryptocurrency market as Bitcoin fell by 17 per cent to $52,100.
In Nigeria, the quake on the global stock landscape, led to heightened uncertainty among investors on the Nigerian Exchange Limited (NGX) following reassessments of rate decisions by both the Bank of England (BoE) and the Bank of Japan (BoJ), leading to a withdrawal of profits from global stocks.
Assessing the potential impact of the global financial upheaval on the local economy, Olatunde Amolegbe, Chief Executive Officer, Arthur Stevens Asset Management Limited, noted that due to the interconnected nature of global markets, Nigeria will inevitably feel the effects, although with a delay. He explained that Nigeria’s market is less efficient and integrated compared to major global markets, leading to slower reactions. However, Amolegbe predicted hat the impacts would likely become apparent within 2-3 months.
“The NGX did close in the red Friday and Monday trading sessions although it did not see a crash on the same scale as global markets.”
Noting that the global downturn was also triggered by a possible rate cut, Amolegbe emphasised the importance of a cautious approach to monetary policy by Nigeria’s apex bank. He pointed out that the central Bank of Nigeria (CBN) is unlikely to lower rates soon, as the country is still grappling with high inflation. “Meanwhile, investors on the Nigerian Stock Market should not panic over what is going on in the global market.”
On his part, Mike Eze, Chief Executive Officer, Crane Securities Limited, drew parallels with the 2008/2009 financial crisis, noting that while Nigeria initially appeared insulated, it eventually experienced a downturn.
He expressed confidence “That the Nigerian market’s downturn might be short-lived. Our market has remained active, particularly with ongoing banking sector recapitalization efforts.”
Rather than a negative reaction, Eze suggested that global uncertainty might drive foreign investors towards emerging markets like Nigeria, as they seek safer havens for their capital.
“This could result in increased capital inflows into Nigeria, providing a potential cushion against global market volatility.”
Daily Sun’s investigation revealed that when trading resumed on Monday, the domestic bourse experienced a significant downturn. By the end of the trading session, investors had collectively lost N93 billion. However, the sharp decline was driven by growing uncertainties linked to recent protests that led to loss of lives and widespread looting of supermarkets across the country. The unrest has instilled fear among investors, impacting market confidence and contributing to the substantial financial losses.Specifically, the NGX All-Share Index and Market Capitalization which had depreciated by 0.46% and 0.19% to settle at 97,745.73 points and N55.497 trillion respectively, on Friday, fell further by 0.17% and N93 billion to close at 97,582.41 points and N55.404 trillion.The banking sector has been notably affected, with several branches shutting down in major centers across the country due to fears of vandalism. This downturn poses a threat to the Central Bank of Nigeria’s (CBN) recapitalisation plans.
While shares of Accesscorp, Zenith Bank, GTCO, and Fidelity Bank remained unchanged, those of Wema Bank and Sterling Holdings depreciated. Additionally, MTN Nigeria’s stock price dropped by 5.95% to N178.70 per share, its lowest since October 2021, due to recent service delivery challenges, including increased dropped calls and network hitches since August 1.
Despite the overall negative trend, some stocks like Fidelity Bank, FBN Holdings, and UBA appreciated in value, showing that some investors still maintain confidence in these stocks
However, experts have voiced their concerns, stating that these developments could have a detrimental effect on Foreign Direct Investments (FDIs) in Nigeria.
According to them, the heightened uncertainty and negative market performance may deter potential foreign investors from committing capital to the Nigerian market, further impacting economic growth and stability even as some banks were reportedly shut in some parts of the country.
Head, Research and Investment at FSL Securities, Chiazor Victor, highlighted that the combination of global stock crashes, domestic protests, and the windfall tax has raised investor concerns.
He suggested that the CBN and NGX should consider developing strategies to prevent this situation from escalating into a major challenge, similar to the business continuity strategy employed during the COVID-19 pandemic.
“Let us not forget that the protests have not stopped and this current development just adds some degree of uncertainty in the minds of investors who are not even happy with the windfall tax by the federal government. This situation may likely lead to delays in investment flows which would hinder banks to meet the CBN’s recapitalisation directive.
“I am sure that the management at CBN and NGX are following the event and so my suggestion will be that they kick-start strategies on how to prevent this from turning into a huge challenge. During the COVID-19 pandemic, we saw the NGX come up with a Business Continuity strategy, we also saw the CBN roll out a couple of interventions and so I think they might come up with strategies to address the situation”, Victor explained.
The global market rout was triggered by a U.S. jobs report that indicated a significant slowdown in hiring, raising fears that the Federal Reserve’s high interest rates might push the economy into a recession. This report caused a surge in the VIX, a measure of market volatility, which jumped by 105 per cent.
In Europe, major indices also suffered, with Germany’s DAX falling by 2.3%, France’s CAC 40 losing 1.9%, and the UK’s FTSE 100 dropping by 2.1%. South Korea’s Kospi and Taiwan’s Taiex were heavily impacted, particularly by declines in tech stocks like Samsung Electronics and Taiwan Semiconductor Manufacturing Co.Oil prices fell, with U.S. benchmark crude dropping to $72.11 per barrel and Brent crude to $75.46. The cryptocurrency market also saw significant losses, with Bitcoin dropping 17%.