Stock market

By Dele Sobowale

Another epistle to stock market investors

Almost all Nigerian newspapers carried the same bad news on the first day of the second half of the year. I was probably the only person in Nigeria; and perhaps in the global investment community, who was not surprised that investors are once again losing their shirts on the Nigerian stock market. I expected it; I predicted it earlier on.

In January this year, I got published an article titled “The Manipulated NSE Set to Crash.” As usual, the warnings contained were routinely ignored; because share prices were still rising at the time. I even predicted when the decline would start. Like magic, prices started dropping when the manipulation stopped.

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Now, misguided investors will pay the heavy prices for not listening to advice. The N1.3 trillion lost in the first half is only the beginning. More losses will follow – until the manipulation resumes again late in the third quarter, Q3 – by the same sharp operators.

But, first, read part of what was announced very early this year. However, permit me to remind our readers that the January 2021 article contained a great deal of historical references – other times in the past Nigerian investors were warned of impending doom. Invariably, few took notice and have remained grateful to me since then. I hope you will join them. Below is the heart of the matter – as written in January.

“In case you are wondering if this article is about history, then, let me tell you the truth. It is about the NSE and what to expect in 2021. Expect another crash. The reasons are not hard to discover – based on previous experience. Invariably, the NSE, every eight to ten years after a prolonged downturn stages, a recovery which should be gradual and not too large. But, in 1997/8 and 2008/2009 when we have experienced astonishing growth of stock market value, it had occurred against an economy in distress. That is always the warning sign. When share prices are reaching new records at a time the economy is in depression, then somebody or some people are manipulating the share prices for their own benefit. The current bull market is not an exception. “

(Source: The Manipulated NSE Set To Crash. January 2021.)

 It is now a fact that the stock market shed N1.3trn in the first half of this year. That follows last year’s negative performance except for the brief period in the third and early fourth quarters when, the market, “inexplicably” staged a strong rally. I knew the rebound was unsustainable and made no sense given the recession in the economy, our dwindling external reserves the increasing impotence of the Federal Government and states to generate revenue required to run governments and the assault on Nigerian farms by bandits and vandals. Nothing conceivable suggested that share prices could stay up.


Now that the first half of the year has ended as I predicted, the next question is: what should investors expect for the second half? The answer is simple: more price erosions – until about the end of the third quarter, Q3.

What are the factors likely to lead to further share price erosion? Four inescapable elements are most important: inflation, sharp fuel price increase, another round of official devaluation and massive retrenchment of public workers by states. The four are not only closely linked; none of them can be avoided before the end of this year. Let us now examine them one by one.

Inflation, now hovering around 18 per cent, will rise on account of food-price increases – irrespective of what government does. Recently, there was report of three million Internally Displaced Persons, IDPs, recorded in Kaduna, Borno, Niger and Benue states alone. These are traditionally four of Nigeria’s largest food producers. Furthermore, the three million in IDPs exclude others who have fled their farms but are not camped. The figure excludes those in the other states – particularly Zamfara, Katsina, Yobe, Taraba, Nasarawa, Kebbi and Sokoto – who have abandoned their farms. For all we know, close to 30 million former farmers might have left their farms.

The aggregate harvest shortfall is now impossible to estimate. But, one thing is certain – famine looms. The collateral damage to the rest of the economy will be colossal.

But, it is not food-price inflation which is sure to continue. Sooner or later, fuel subsidy will go; and fuel prices will go up by more than 100 per cent in the first instance. When the landing cost of petrol is N240+, the FG cannot continue subsidy indefinitely. The price will shoot up to more than N250 per litre. It might come down later; but, it will stay up for a while. And, as the price of fuel escalates, it will add to the underlying inflation caused by food prices and FG borrowing heavily from banks and driving up interest rates.

Another official devaluation is likely. Our dollar revenue is actually dwindling. Our oil rig count is down. Nigeria cannot now produce up to its OPEC quota level. Thus, even with crude prices going up, we are in no position to take advantage of it. When, not if, the next round of devaluation occurs, its impact combined with other factors will tip inflation over 20 per cent.

One gets sick and tired of public and private sector officials who fail to do their homework (or get someone to help them do it) before arriving at vital decisions. Increasing Minimum Wage from N18,000 to N30,000 implied a 66.7 per cent increase. Commonsense dictates that the first question to ask is: how will government raise the revenue to pay? Without that, the announcement by Buhari was an exercise in futility or official 419. 

The Federal and most of the state governments are now incapable of meeting their financial obligations to workers and pensioners. The N30,000 per month Minimum Wage agreed to last year has become a heavy burden which only four or five states can discharge without reducing staff. Millions of people will lose jobs and purchasing power. Pensioners will suffer more; because governments find it easier to deny them their entitlements than those still working. Altogether, the outlook is depressing; and the impact on firms, while difficult to estimate now, will be negative.

 Each of these variables will have profound influence on aggregate corporate performance this year; and none of it is looking positive right now.


It is simply amazing that most investors in the stock market don’t undertake exercises in simple arithmetic. Otherwise, they would not fall into the same trap every time. Let me illustrate.

If you had shares valued at N13,000,000 or ten million in January this year when official exchange was N390/US$, then they were worth  $33,300; today at N410/US$, they amount to $31,700 – if your shares have not shed price. If they are on offer for say N11,000,000, then you are holding only $26,800.

The next rounds of inflation and/or devaluation could see you holding less than $20,000. And, nobody in his right senses should bet against that possibility; because the factors weighing down on economic recovery – insecurity, incompetent economic management, record high corruption in governments and political instability, are stronger than ever.

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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.