The State of the Market Vol.4

The Nigerian Stock Market is currently exhibiting all the twists and turns of a good Nigerian Nollywood movie. With a squeal of tires, investors roar up a one Way Street, the NSE follows in quick pursuit, lights blazing and blocks off the road behind them in the hope that there is no other exit. In the films there is always another way out, not quite so sure if that is the case in a falling stock market. Sell your stocks and you go out in a blaze of gunfire, your blood splattered all over the walls as you sink to the floor, very dead. Anyway, enough film analogies, let’s focus on the facts…

Following discussions yesterday, stocks will no longer be allowed to fall below a maximum of 1%. Historically stocks were allowed to fall by 5% but this is set to change. This should prevent stocks from entering into free fall but will not prevent them from opening limit down every day for the next 100 days.

The second resolution to address the falling market is that companies will now be allowed to purchase their own stocks. Presumably this had been dis-allowed to prevent rampant market manipulation by companies seeking to ensure that their stock price held out at least till the next capital raise or AGM (Nigeria is not the wild west for nothing).

The market has been in free fall over the last 6 months and as long as the fundamentals are biased towards falls in the price of company valuations, share prices will continue to fall, whether 1% or 5% limits are in place. Allowing companies to purchase their own shares is a practice that is in place in more mature markets and appears to make sense, the NSE should however do all in its power to ensure that they have monitoring structures in place that can penalize companies or individuals that use share purchases as a tool to manipulate the market. Easier said than done.