Nigeria saw its first case of coronavirus in late February 2020, shortly before the WHO declared the pandemic. As of this writing, the country has 9,140 active cases and 382 total deaths. The peak in daily growth occurred on June 9, and contagion is not slowing down. The global crisis has caused a dent in the national economy already affected by the oil price collapse.
Acute effects of COVID-19 highlight the need for radical change. As the national economy is heavily dependent on oil, the government ought to reconsider the entire financial system. Consumers are seeing their incomes erode, and the effects are felt across the board. The stock exchange was quick to reflect the changes.
Even before the outbreak, the government was grappling with economic complications. Nigeria had not fully recovered from the oil crisis of 2014. GDP for 2019 was unimpressive – only 2.3%, which was later lowered to 2% by the International Monetary Fund. In early 2020, the country was expecting it to reach 2.5%. Now, the Debt Service to Revenue Ratio has soared to 60%.
The damage caused by the pandemic was two-fold. First, global lockdown exacerbated the effects of the oil crisis. Failure of the OPEC+ deal in March had already triggered a plunge in prices. Oversupply of crude oil caused them to stay low. Nigeria’s budget for 2020 was based on forecasts of $57 for a barrel. In April and May, the price was fluctuating at around $29. Meanwhile, sales of the commodity account for 90% of the country’s foreign exchange earnings.
Covid-19 has had a vastly negative impact on local stock trading. The imposing of social distancing caused the shutdown of financial markets, offices, companies, and events. As the coronavirus is still spreading quickly, the effects are likely to be magnified in the future.
The stock exchange has seen a dramatic decline. The resulting volatility was wild. On March 13, the stock exchange saw the most dramatic collapse as it fell by 13.49%. However, on April 17 investors saw the highest weekly returns, which amounted to 7.19%. On May 22, the YTD of the NSE All-Share Index lost 6.10 % in comparison with January 31.
There is no certainty concerning the duration of the crisis or the depth of looming economic devastation. Institutional players are taking less interest in stocks. Their portfolios are now geared towards safer assets like Treasury bills and government bonds.
In May, as oil prices started to recover, investors reaped sizeable gains. Market capitalization grew by N1.2 trillion, and the sentiment was bullish. In total, 69 stocks appreciated, while just 11 lost value. Nevertheless, trading metrics kept deteriorating. The monthly value of trades was the lowest for the year.
Finally, there are positive developments. Online traders are increasingly engaging in buying and selling of corporate stocks through FXTM. For local clients, internet-assisted trades present a viable opportunity to make a profit remotely. Modern platforms and apps make stock trading accessible to anyone, even with a modest initial investment.
The change is associated with the transition of government measures from lockdown to reopening. This boosted market sentiments worldwide. On NSE, stocks were purchased by both local and offshore accounts, with the former buying most actively. Overall, the performance of the most capitalized stocks in May was remarkable.
- The NSE 30 closed higher by 11.1% thanks to the recovery of oil prices, as a $3.4 billion IMF facility.
- Investors also showed a positive reaction to the release of Q1’20 and FY’19 results for MTNN and BUACEMENT, as well as their gains.
- Another driver was the strength of GUARANTY and NB. These were popular with local and foreign investors attracted by low prices.
Conclusion: Positive Signs
Before the crisis, the Nigerian stock market was perceived as fairly safe for investors. Following the outbreak, the outlook has changed. It is now clear that Nigeria is going to feel the pain due to its dependence on crude oil exports. The steep decline in commodity prices is exacerbating the fiscal pressure.
However, the stock exchange has now turned to bullish sentiments. Stocks are being bought by local and foreign participants. Overall, the trends look encouraging, albeit not spectacular. Obviously, despite the rise in NSE, the national economy needs a long time to recover from the pandemic.