Lack of investor confidence is leading to a string of losses by quoted companies on the Nigerian Stock Exchange (NSE). United Capital in its latest weekly report, states that the Nigerian equities market needs a “positive trigger” because it is currently suffering from weak buying momentum and low trading volumes.
United Capital says the low investor confidence in the Nigerian stock market can be blamed on “lingering uncertainties over the macroeconomic environment” which has resulted in investors in the equities selling down their stock holdings.
The stock market was down 0.7% for the week ending Friday 12, 2016 and is now down -4.9% since the beginning of the year. Stocks in the oil and gas sector have made the most loss since the beginning of the year, with average loss of 18.75% on prices of stocks listed in the sector. The worst performer in this sector is Femi Otedola’s Forte Oil which is down 51.1% since the beginning of this year.
Also stocks listed in the Industrial goods sector have not fared too well, with stocks in the sector losing an average of 16.80% of their value in the bearish Nigerian equities market.
An increasingly difficult economic environment has been blamed for the poor performance of stocks on the Nigerian stock exchange. Rising inflation, which currently stands at 16.5% but which analysts are already forecasting will climb to an 11-year high of above 17%, are also factors making it unattractive for investors to hold stocks rather than higher yielding financial assets.
Rising yields in the money market is one area that is attracting the attention of investors. Investors could get average yields as high as 17.1% on treasury bills while yields on bonds is now averaging 15.1% making them more attractive than investments options available in the equities market currently.
A weakening naira and rising inflation means that investors will want to stick to only financial assets that offer the highest returns to guide against an erosion of their wealth. Stocks right now do not offer much in that direction, especially with poor financial results from companies recently.