Nigerian stocks enter bear market to lead 2016’s list of losers

Nigerian equities dropped the most in more than a year to enter a bear market as Brent crude prices plunged, weighing on Africa’s biggest economy and oil producer.

The Nigerian Stock Exchange All Share Index fell 4.1 percent to 22,550.83 by the close in in Lagos, the lowest level since July 2012. The measure is down more than 21 percent since the previous peak on Dec. 31, the worst performer among 93 global indexes tracked by Bloomberg this year.

Nigeria is struggling to cope with crude prices that have fallen to below $30 a barrel, while investors are holding off from pouring money back into the country until there is clarity over whether the currency will be devalued to compensate for the drop in oil revenue. With the backing of President Muhammadu Buhari, the central bank has restricted supplies of foreign currency, curbing output and all but pegging the naira at 197-199 per dollar since March last year.

“The oil price is scaring’’ investors away, Lanre Buluro, head of research at Primera Africa Securities Ltd., said by phone from Lagos.  There is also “no clarity on the exchange rate,’’ he said.

The slide in stocks comes only one trading day after the bourse introduced a circuit breaker on Jan. 15 to limit price swings. Trading on the Nigerian Stock Exchange will be stopped for 30 minutes if the All Share Index moves more than 5 percent from the previous day’s close between 10:15 a.m. and 1:45 p.m., the bourse said. The market will close for the day if the circuit breaker is triggered for a second time or after 1:45 p.m.

Currency Crisis

“Using a circuit breaker to shore up the market — rather than to avoid volatility — is deeply flawed,” John Ashbourne, a London-based economist at Capital Economics Ltd., said in an e- mailed note to clients. “Nigerian equities face fundamental pressures, not least the country’s slowly-unfolding currency crisis, which is deterring foreign investors. Indeed, a circuit breaker may well push dealers to sell faster than they otherwise would; the effect is akin to calling last orders at a crowded bar.”

FCMB Group Plc, a lender and money manager, fell an eighth day, retreating 8.5 percent to 1.08 naira, a record low. Lafarge Africa Plc declined 9.7 percent to 78.30 naira, its biggest decline in more than 14 months, while Stanbic IBTC Holdings Plc decreased 9.7 percent to 12.23 naira, its biggest drop since October 2008.

Black Market

Oil accounts for two-thirds of government revenue and about 90 percent of its foreign currency earnings. The commodity’s slump is weighing on growth, which is estimated to have slowed to 3.2 percent last year, the slowest pace this century, according to a Bloomberg survey of economists. It’s also spurring speculation that the official exchange rate of the naira will be lowered, with prices on three-month naira forwards weakening to 251 per dollar on Monday, matching a record low.

Nigerian central bank Governor Godwin Emefiele must appear at a hearing in Abuja, the capital, at 11 a.m. on Tuesday, to explain a slide in the naira on the black market and amid calls from the main opposition party for him to quit. The shortage of dollars has led to the naira weakening in the past several months on the parallel market used by companies that aren’t banks. The black market rate fell to 300 against the dollar for the first time last week and was at a record 305 on Thursday.

 – Bloomberg