Meltdown

October 2008 will go down as one of the worst months for the Nigerian Stock Exchange (NSE) All Share Index (ASI). The Index closed at 36,326 down 21.4% from its opening. This is the worst performance in any one month between 1995 and 2008. The Index has now lost 37.4% year to date and is down 45% from its peak in March 2008.

Value of transactions has all but collapsed. Only N39.7 billion was exchanged in October an average of less than N2 billion a day. This is the worst so far this year and a far cry from the N388 billion exchanged in February 2008. Another record set in October was that the Index went down throughout the month. There was no single positive day for the Index. It was so bad that on some days no stock gained. Another unwanted record!

The 1% cap on downward movement on prices was removed on 28th October which allowed October to set some of the above records. Despite the meltdown, the removal of the cap is a welcome development. We need the market to bottom out sooner rather than later. The 1% cap was merely postponing the inevitable.

By the end of the week most of the banking stocks were selling at more than 50% off their 52 week high. The ASI itself is back to the level last seen in January 2007. If care is not taken, all the gains of 2007 will be wiped out by the end of next week.

What we witnessed in October is probably a once in a generation event. The NSE has been wrecked by the financial tsunami tormenting the world financial markets. The collapse of markets all over the world in the last few months precipitated by the sub-prime mortgage crises in the United States has confirmed the impact of globalization and the interconnectedness of world economies.

Next week will be interesting. I shudder to think that another 25% decline is in the offing. The worse is surely over. Or is it not? Stay tuned.