Heightened economic uncertainty, emerging market sell-off and increased volatility in crude oil prices made a poor market performance almost inevitable for the Nigerian stock market last year, causing the All Share Index to post a full year decline for only the ninth time since 1985.
Against the popular belief that the stock market is very risky and there being a high probability of capital loss investing in the market, the NSE has recorded 26 positive yearly gains as against 9 negative years in the last 34 years which translates to a 76.47 percent probability that the broad market index will close higher every year.
BusinessDay analysis of the All Share Index performance shows that the NSE index declined last year by -17.47 percent, making it the third worst market rout in Nigerian history behind the 2008 and 2011 selloffs.
The Nigerian stock market lost almost a fifth of its value in index points at the end of last year and recorded a 14 percent loss in market capitalization which amounted to N1.88 trillion.
According to Bloomberg, the continent’s stocks and bonds did not fare any better as they performed worse than those of all other emerging-market regions in 2018, reversing their outperformance last year.
“It would have been miraculous if equity fund managers made considerable returns in 2018,” said Henry Ogbuaku, group head, GDL Asset Management.
“The reason is because there are set allocation benchmarks for the equity funds and you cannot go beyond these allocation strategies and migrate to another type of asset class even if the equity market is bleeding,” Ogbuaku told Business Day.
Stocks are cheap in the Nigerian market as it stands but bargain-hunters won’t necessarily jump in next year. Risks abound from tense elections in the country to low oil prices, potential credit-rating downgrades and the prospect of sovereign defaults.
Nigerians go to the polls in mid-February, with 75-year-old President Muhammadu Buhari trying to fend off a challenge from Atiku Abubakar, 72, a former vice president. Buhari has promised Nigerians that he will relentlessly continue to fight against corruption.
However, his administration has suffered several controversies, causing Nigerians to question if his team also shares the same agenda.
Nigeria’s economy has struggled to grow by more than 3 percent under Buhari, causing economists to ponder if changing the helm of leadership to a more pro-business presidential candidate like Atiku may actually benefit the economy and build back investors’ confidence in the capital market.