Nigeria’s financial markets are troubled – going by the numbers in various segments’ reports as at 2020 first quarter (Q1). The Coronavirus endemic is at its peak, pulling down strongholds and shredding hopes across the globe. Nigeria is recording increasing number of confirmed cases on a daily basis (238 as at April 4). And the economy is at a huge risk. There are indications that the economy will reel on the throes of severe pressure preceding a recession by the third quarter.
The nation’s bourse was among the worst hit. Market capitalisation declined by N1.86 trillion on March 31, 2020, signalling investors’ stream of losses in the financial markets in Q1. Trading had opened with market capitalisation of N12.95 trillion to closed N12.97 trillion on the first trading day – January 2, 2020, recording a gain of N0.12 trillion. The All-Share Index also gained marginally – 26,867.79 from 26,842.0 representing 25 basis points or 0.1 per cent.
The bullish trajectory ignited by the first trading day reached its peak on January 31, when capitalisation hit N14.85 trillion with All-Share Index rising to 28,843.5. This was a jump of N1.89 or 14.66 per cent from the N12.97 trillion on January 2 representing 14.66 per cent. The NSE Index also climbed by 2001.46 basis points or 7.46 per cent. The market nosedived sharply in the month of February, dropping by N1.200 trillion or 8.08 per cent to close at N13.657 trillion. The NSE index within the period shed 2626.07 basis points or 9.11 per cent to close at N26,216.46.
Expectedly, the bearish trajectory in the equity market worsened in the month of March as many businesses were forced suspend operations and government – both at the federal and state levels – ordered the lockdown of the nation’s borders and sub-national boundaries. This was in response to the fast-spreading COVID-19 pandemic with high rate of fatality across the globe, especially in Europe and America. Extended to the last week of March which ended April 3, market capitalisation dipped further by N1.97 trillion to N10.99 trillion or 15 per cent, while All Share Index dropped to 21,094.6 representing 574 basis points or 21.7 per cent.
The NSE poor performance worsened during the period following investors’ cautious attitude towards the biting effects of the oil prices in the international market occasioned by the rampaging COVID-19 pandemic. Analysts further explained that the development followed investors’ waning confidence the market that failed to recognise the key policy measures put in place by the federal government to cushion the effects of the COVID-19. This included the initial N20 cut in the price of premium motor spirit (petrol) to N125 from N145 per litre in March. The development resulted in some investors adopting a wait-and-see attitude while others engaged in share offloading to enable them to stock their homes with food and other necessities while the shutdown lasted.
The Forex market was not spared: Naira depreciated by 2.55 per cent at the Investors and Exporters (I&E) Window to close at N381.50/$1 in the week ended March 27. The local currency also depreciated to N395/$1 or 6.76 per cent at the Bureau De Change (BDCs) and N410/$1or 7.8 per cent at the parallel markets following the suspension of forex to BDC operators by the CBN “to curb the spread of COVID-19”.
This shows remarkable depreciation of the Naira as against the performance in the opening week of January 3 when it recorded N364.98/ $1at the I&E window or 0.11per cent; N359/$1 and N362/$1 at the BDCs parallel market respectively.
Inflation rate has remained on the upward trend: From 12.13 per cent in January to 12.20 per cent at February. March is not likely to see a downward trend. The 2020 N10.59 trillion budget is to be scaled down by N1.5 trillion while crude oil benchmark and production level are being revised downwards from $57 to $30 per barrel and 2.18 million to 1.75 barrels per day respectively. Paul Alaje, Senior Economist at SPM Professionals, says Nigeria should be prepared for a recession in the third quarter of 2020 as a result of the hiccup in the economy following the COVID-19-induced disruption in economic activities and global effects that will last for quite some time.