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Nigerian Stock Exchange and financial suicide

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By  Dele sobowale

“A sucker [fool] is born every minute” – P.T  Barnum, US Circus Master.

Equities
Nigerian Stock Exchange

The great entertainer who made this remark about his fellow Americans never heard of a country called Nigeria – because it did not exist then. If a Nigerian comedian wants to use the same line today it will probably be “A Nigerian fool is born every second and some of them invest in the Nigerian Stock Exchange.”

I never intended this year to write about the Nigerian Stock Exchange, NSE. My observations of the NSE, in the previous three years, although proved to be correct, had convinced me that Dr Chris Uwajei, Nigeria’s computer guru, was right when he once said: “If you want to hide anything from the black man, put it in a book. He will never read it.” That statement can now be extended to include “write it in newspapers, or publish it on the internet, with the exception of gossip or political matters.” Nigerians are perhaps the most voracious consumers of Facebook, WhatsAp, YouTube, etc. for the wrong reasons. All the tips published about health, family and children upbringing, banking services, car maintenance, etc. are ignored. But, they know the latest about Davido or Aisha.

In the third week of January 2020 when the shares quoted on the NSE were seemingly heading for the skies, one of the few serious readers of this column called to ask me, “Dele, why the silence on the Capital Market in 2020? Is it because the market is now experiencing a recovery and you can no longer make your usual doomsday predictions?” My answer to him was short: “Wait until March and then call me back to tell me about recovery.” Well, you are reading this in March; and, if you don’t already know that a Tsunami is approaching the NSE, then you must have rocks where brains are supposed to be.

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I advised one of my close relatives, who was thrown out of Treasury Bills by the Central Bank of Nigeria, CBN, to forget the Capital Market during the period of national euphoria about a good year. I directed him to go elsewhere. He grumbled but took my advice at first. He called back a week after to ask me if a mistake had not been made. I told him: “Definitely not.” We met on Monday before Ash Wednesday at his request. He jumped out of his car and hugged me enthusiastically. After receiving the first returns on his new investment and comparing with what he would have lost if he went into the NSE, he had made a positive gain of N5.7 million in ninety days only. “What next?” he asked. And the answer remains the same – “stay out”.

That was before the Coronavirus Catastrophe hit global financial markets, manufacturers, service providers and China, hitherto the most visited country in the world in 2019, became the world’s “No-Go Area”. Going to China these days amounts to passing a prison sentence on yourself. You will certainly be locked up. Any goods – finished, spare parts, components or raw materials — anyone is expecting from China for a good part of the rest of this year might as well be written off. It will most probably not be allowed into the country even if it arrives. The whole world is learning anew the lessons of antiquity. When our forefathers warned about not putting all the eggs in one basket, they were not even aware how important that warning is for nations as well as individuals.

Diversification of sources of supplies of inputs by whole sectors – computers, handsets, cars, aircrafts etc — was discarded in favour of one single source of global supply. China enjoying the benefits of Economy of Scale is able to offer goods at the lowest possible prices for virtually everything. As the world goes into a global emergency, in health and finance, the survivors of both have a lot to think about – mainly how to reduce the global dependence on China. But, that is a serious problem for the future. What concerns us are the immediate and short-term impacts on global commerce and how it will affect the NSE.

A glance at global markets provides no reassurance — quite the contrary as a matter of fact. There is no single major market which is not now in turmoil. The human race is now back to the days of the financial crisis which rocked the world in 2008 and which devastated our banking sector as well as the Capital Market itself. There is absolutely no reason to expect anything different this year for at least two fundamental reasons.

First, when a general pandemonium breaks out, everybody heads for home first – leaving it to the authorities to take measures to restore normalcy. Foreign investors, especially portfolio investors, invariably take flight. Fire sales of shares and draw-down of deposits in foreign financial institutions occur. Hotels lose lodgers and airlines run into turbulent weather. Global airlines are already feeling the heat as a lot of countries stop flights from and into China. Soon domestic airlines worldwide will nosedive. Nigerian airlines and the banks which financed their operations are in for a rough period. How long is unpredictable. But, it might result in the winding up of one or two of our fragile carriers any time soon. Nigerian manufacturers, heavily dependent on China, have just started to count their losses. Altogether, the outlook for the near term – March to December 2020 – is not very encouraging.

Second, the fools’ rally which, in January 2020, convinced novices that a genuine recovery was underway only proved to me how gullible most Nigerian investors really are. The Nigerian Capital Market is still infested with share manipulators who occasionally spark a fake rally, make a quick gain and leave the suckers holding the bag when they suddenly pull out. Nothing in the economy could explain the reason (s) for the rally. Professional forecasters were certain it was induced by big money men out to make a quick killing. They were largely successful in fleecing the unwary or people who refuse to accept the fact that the advice we have been giving them has been correct. The result is out now.

“Equities: The NSEASI (-428bps w/w) slumped this week [February 23-27, 2020] as sell-offs in the banking sector (-11,79% w/w) weighed on the index; as a result, the market has erased all its 2020 gains…”

VETIVA, PUNCH business, March 1, 2020 p 49.
So my friend, there is nothing more to add to the VETIVA report card.
WHAT DOES THE FUTURE HOLD?

We were not surprised at all. Indeed, we expected it. But, that is now past tense. The future is now what matters. And, the future is bleak for two very major reasons which are now almost inevitable: A possible recession later in the year 2020 and more capital flight by portfolio managers. It was not only the capital markets which were rocked by Coronavirus possible pandemic, the price and global demand for crude oil also headed for the basement. At one point, it went slightly below $50 per barrel. A mere two months’ more of that sort of “crazy” price and Nigeria, without a Sovereign Wealth Fund, to draw in and its Excess Crude Account already depleted, will land in another recession. Only a fool or an incurable optimist will bet against both of those eventualities occurring. The more COVID-19 spreads, the better the chances that the price of crude might not reach the mid-60s again this year. Tourism and trade trips to China will certainly not rebound for quite a while. Another outbreak in a big country like India will just about finish us.

When the world is in turmoil, foreign investors head for home or safer havens – meaning, by the latter, countries whose governments have demonstrated the ability to think ahead and weather severe storms. Nigeria is certainly not one of those. That is why the planes going out will be overbooked; those coming in will beg for passengers. The year is over early for the NSE. Those shedding money in February might shed tears in August….

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