Are we Immune?

Capital Markets the world over have been in a state of turmoil and uncertainty for most of 2008. Most markets are in the red zone for the year including our own NSE. US markets entered official bear territory last week as major indexes closed 20% off the record high.

The NSE All Share Index is 17.6% down from the record high achieved on 5th March 2008. While we don’t have an official definition of a bear market, the mood among regulators and investors is that we are in a bear market.

From the comments of regulators of the NSE and investors, it appears most are perplexed as to why we should be on this bear run. That in my view is to ignore the strong positive run we have had in the last 9 years and the state of the world economy and financial markets.

Since last year when the credit crises surfaced in the US and Europe, the financial industry has not been the same. Record write offs by financial giants Citigroup, Merrill Lynch, UBS etc have followed. The crisis has slowed world economic growth and has pushed the US economy and other European economics onto the brink of recession. High oil and commodities prices have acerbated the situation.

Commentators the world over are predicting gloom. One that caught my eye was a comment by Peter Kenny, “the bottom line is that we are in the middle of a financial tsunami. This is a storm the likes of which this country (US) hasn’t seen”. With Fannie Mae and Freddie Mac (backbones of US mortgage market) facing a meltdown of their share price in the last few days, let’s hope Kenny is wrong. History has shown us that when all are predicting doom and gloom, chances are that recovery is just around the corner.

So what about us in Nigeria, are we immune to the turmoil? In my view we are not and our regulators should start acting that way. The high oil price has helped Nigeria more than hurt but even our manufacturers are groaning under the weight of high diesel price. More importantly, it appears liquidity in the capital market has gradually declined. Although we are told foreign portfolio money only accounts for 12% of the market, I am betting it can only get lower. Foreign money managers have bargains in their backyards and therefore have no incentive to come to Nigeria shopping. Add that to the fact that our own market is also on a bear run and therefore not as attractive as it once was. The liquidity has to come from within.

Regulators of our market need to acknowledge we are not immune to the state of global economic health. We investors need to also acknowledge that and stop worrying. After all our banks are in the best state of their lives unlike those in the US and Europe.

This bear run will surely come to an end like all things in life. Considering all the gloom around us, it might be sooner than we think.

Exchange.........YTD July 10th %

NSE.............(5.5)
Cairo...........(5.3)
JSE.............(6.6)
S & P 500.......(15.2)
DJIA..............(16)
FTSE.100........(16.5)
CAC.40..........(24.8)
BSE 30.(India)..(31.1)

Source: FSDH weekly report