Nigeria stocks fall second straight session as U.S. Stock turbulence escalates

The Nigerian stock market fell the second straight day Tuesday amid a global sell-off that has sent chills down the spines of global equity market bulls.
The Nigerian All-Share Index, which gauges the price movement in the shares of listed companies, started the week on a bearish note, sliding 0.85 percent Monday and a further 0.87 percent Tuesday, according to data obtained from the Nigerian Stock Exchange.
Traders say investors are selling down on counters that have rallied and expect the trend will be sustained for a while.
Meanwhile, what began with rising US bond yields has become a selloff across global equity markets, as investors break sweat over a likely surge in inflation and interest rates that could erode profitability for companies already trading at elevated valuations.
U.S. equity indexes fluctuated after a tumultuous morning that saw the Dow swing more than 900 points in 25 minutes. The benchmark for U.S. share volatility went through wild gyrations after hitting a two-year high.
The S&P 500 Index plunged as much as 2.1 percent at the open of trading Tuesday before regaining ground. The gauge swung between gains and losses of more than 1 percent each for the first time since 2015 and crossed the breakeven line at least a dozen times. The Dow declined more than 500 points before it, too, bounced back. Trading volume in both was more than double the usual pace.
The Stoxx Europe 600 Index decreased 2.4 percent, the U.K.’s FTSE 100 Index dipped 2.6 percent while the MSCI Emerging Market Index sank 2.8 percent to the lowest in five weeks, according to data obtained from the Bloomberg terminal.
Analysts have varying views on the likely impact of the global stock turmoil on Nigeria.
“As investors switch to risk-off mode in response to the volatile global equity markets, it could lead to fund outflows from Nigeria,” Wale Okunrinboye, who handles fixed income and currency research at Ecobank, said.
“That could stoke pressure on the naira from foreign investors buying dollars to repatriate capital gains,”Okunrinboye said.
The naira has been relatively stable since the oil price rally and reforms implemented by the Central bank to ease acute dollar shortages that contributed to tipping the economy into its first full year recession in 25 years in 2016.
The naira closed at N360 per US dollar at the market-driven Investor and Exporter window, which was created April 2017 and has handled some USD$31 billion in that time.
Brent oil slumped 0.84 percent to $67 per barrel Tuesday, but has more than tripled since crashing to a low of $29 in January 2016.
Johnson Chukwu, chief executive officer of Lagos-based financial advisory firm, Cowry Assets, however contends that the global meltdown has little implication for the Nigerian stock market.
“Only integrated emerging and frontier markets will be affected by this (global stock sell-off),” Chukwu said by phone. “Nigeria is not one of such markets as can be deduced when Donald Trump’s election victory had little or no impact on the Nigerian stock market,” Chukwu said.
At the close of trades Tuesday, the NSEASI settled at 14.73 percent year to date. However, the volume of trades and market value declined by 68.00 percent and 77.48 percent respectively.
There were eighteen (18) gainers and fifty-two (52) losers, to peg the market breadth at 0.35 times on Tuesday.
“While we envisage that this trend will be sustained for a while, we do not rule out the possibility of trickles of buying pressures towards the end of the week,” analysts at Lagos-based financial advisory firm, Meristem said in a February 6 note to clients.
Sector performance, as measured by the NSE indices showed declines across all sectors, with the Banking sector emerging as the worst performing sector, having shed 2.11 percent.
The industrial sector NSEIND, food and beverages index (NSEFBT10), insurance sector and oil and gas sector NSEINS10 and NSEOILG5 recorded declines of 0.98 percent, 0.28 percent, 0.52 percent and 0.42 percent in that order.
While the latest stock rout followed a surge in U.S. Treasury yields last week, volatility in the rates market remains contained, according to Bank of America Merrill Lynch strategists. The bank’s MOVE Index, a gauge of price swings in the U.S. Treasury market, rose to the highest level since May 2017 — a muted advance relative to the equity panic.
Earlier Tuesday, the Cboe Volatility Index or VIX, a gauge of implied volatility for the S&P 500 Index over the next month, breached 50 to touch its highest level since the aftermath of China’s devaluation of the yuan in 2015. Since then, it’s fallen as low as 22.42 before recovering to more than 40 and then sinking again.
“While many suggest this shock was driven by concerns of inflation leading to faster than expected policy normalization (the right thing to be concerned about in our view), rates have been incredibly stable compared to past bond-led shocks such as the taper tantrum,” strategists led by Benjamin Bowler wrote in a note.
On Tuesday, three-month options on 10-year Treasury futures rose the most since November 2012. Even with that advance, the index is back to September 2017 levels, after hitting a record low in December.
“Key to understanding whether this is a short-term technical equity selloff, which quickly reverses, or the beginning of something bigger, lies in where rates vol goes from here,” Bowler and his team wrote.

 

LOLADE AKINMURELE