Nigeria's capital market, world's worst hit — Report
2009-01-30 01:14:04
Vanguard Online Edition
Written by Omoh Gabriel & Victor Ahiuma-Young   
Friday, 30 January 2009


The Nigerian Stock Exchange

*GDP to drop from 6.3% to 3.6%

LAGOS—THE Nigerian Stock market has been rated as the worst performing in the world for the month of January, according to a report published by a London-based research company, Business Monitor International (BMI).

It also said that the country’s Gross Domestic Product (GDP) will drop from 6.3 per cent in 2008 to 3.6 per cent in 2009.

This is coming barely 24 hours after members of the House of Representatives raised the alarm on the state of the nation’s economy, alleging that the nation’s economic managers have been economical with the truth, prompting organised labour to call for the immediate sacking of both the Governor of  the Central Bank (CBN), Professor Chukwuma Soludo and the Minister of Petroleum, Dr. Rilwanu Lukman over perceived faulty monetary policies resulting to the continuous devaluation of the Naira as well as crisis in the nation’s oil industry, which have put the nation’s economy in a fragile situation.

Meantime, the Federal Government yesterday issued a N50 billion bond in three tranches that will mature in 20 years, five years, and three years.

Business Monitor International which advises foreign investors on where to put their money said: “You could not have done much worse than investing in the Nigerian stock market in 2009.

With the Lagos All-Share Index down 27.5 per cent since January 1, it’s the worst performing equity index in the world so far this year. Add to that a 9.2 per cent drop in the currency, and you are looking at a third of your investment gone in one month.”

Speaker of the House of Representatives, Dimeji Bankole, had on Wednesday  painted a gloomy picture of the stocks market before the captains of industry.

The value of the market, he said, has dropped from N14 trillion to N5 trillion due to the global financial meltdown.

He said there was a need for innovative and “serious hard creative thinking” to solve the problem. He said: “Our experience has indicated that the global turmoil has affected Nigeria’s economy in the areas of capital flight, exchange rate of the naira, upward pressure on inflation and dwindling foreign reserves.”

Nigeria in problems, says BMI

BMI in its monthly report released yesterday stated: “With the price of oil down more than $100 per barrel from the July peak, it is not particularly surprising that sub-Saharan Africa’s biggest until recently producer has run into problems.

The lack of oil money circulating through the economy is sure to impact businesses.  Business Monitor
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Governor of the Central Bank (CBN), Professor Chukwuma Soludo

International is forecasting GDP growth of just 3.6 per cent in 2009, from 6.3 per cent in 2008, and risks are to the downside, and also make available less liquidity for investment in the market.

“But it is not just oil that is giving the stock market a headache. Foreign investors largely packed up and left after the capital market authorities imposed a maximum downside limit of 1 per cent on the index back in August 2008 which had the effect of seeing the market fall by a small margin for 34 straight trading days before the limit was removed.

“Given the rise in global risk aversion, I do not see a return of these investors in the near future. More worryingly, I have warned before about the looming potential for crisis in the banking sector, shares of which make up a not insubstantial 48.6 per cent of the exchange’s total market capitalisation. Should some of the banks go down, there could be significantly more downside ahead.

Sack Soludo, Lukman, labour demands

At a press conference in Lagos yesterday, leaders of the National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN), argued that only the sacking of Soludo and Lukwan and their replacement with more focused and competent individuals could stop the economy from sinking deeper into doom. 

General Secretary of the union, Comrade Issa Aremu, noted that Prof Soludo has exhausted his intellectual capacity to effectively manage the nation’s monetary policy and lamented that the CBN Governor  who once said what Nigeria needs is “revolution” not just reform, has now imposed a counter revolution which has left in its trail, weak consolidated banks, devalued Naira — almost by 50 per cent since  December last year — at a time Central Banks worldwide are strengthening national currencies to respond to the global economic melt down.

Comrade Aremu who is also a vice-President of Nigeria Labour Congress (NLC), posited that Dr. Lukman, on his part, had no fresh ideas to revive the depressed oil and gas sector, having been in the system for over 30 years.

According to Comrade Aremu, Prof Soludo started well, but has now lost focus, stressing that “within two months alone, Naira has witnessed the worse devaluation of up to 50 per cent under Soludo.”

FG issues  N50bn bond

On its part, the Federal Government, yesterday, issued a 50 billion naira ($334 million) 20-year, 5-year and 3-year sovereign bonds at its first debt auction of the year, the Debt Management Office (DMO) said.

The debt office said the 20-year and 5-year bonds, which attracted 15 percent and 10.50 percent coupons respectively, were re-openings of previous issues.

The 3-year instrument, a new issue, attracted a 9.92 percent coupon. “Successful bids for the 3-year, 5-year and 20-year offers were allotted at the marginal rates of 9.92 percent, 11.40 percent and 13.32 percent, respectively,” the DMO said.

“However, the coupon for the 3-year was set at 9.92 percent, while the original coupon rates for the 5-year and 20-year would be maintained at 10.50 percent and 15 percent, respectively.”

The 20-year bond is the highest tenor debt instrument ever offered in Nigeria and was first issued in last November in a new step to deepen the nation’s bond market.

http://lagosstateonline.com/index.php?view=1039

Our stock market may be the worst performing, but it's not the worst hit.
The abysmal performance of our stock market is a fallout of the Bank Shares Bubble.
Banks promoted the stock market to get capital. Once they stopped promoting it, prices fell.

QED.

The Nigerian capital market in a Nutshell...