Is the NSE set for a Bullish or Bearish 2015?


Nigerian equities listed on the Nigerian Stock Exchange (NSE) were among the worst performing stocks globally in 2014. In fact, the Nigerian Stock Exchange occupied the third position on the list with a loss of N1.75 trillion to represent a full-year decline of 16.14%. The NSE's third position is just behind Russia and Columbia and ahead of Greece.

The losses sustained in 2014 looks to be casting dark shadows over equities in 2015 as Nigerian stocks have recorded losses of N1.4 trillion within the first trading week of the year. The piece seeks to explore the bullish and bearish cases for the NSE in 2015 in order to assist you in making educated investing decisions.

The Bullish Case for the NSE

The first point that makes a bullish case for the NSE is that Nigerian equities are currently "undervalued" and their cheapness could provide great entry points to stimulate the buying action again. It might interest you to know that Nigerian equities were among the top global performers in 2013 when they delivered average gains of 41%. Hence, the 16% loss recorded last year has not yet taken out half of the profits from 2013 and risk-averse investors could see the general trading down in the market as an opportunity to buy the shares of fundamentally sound companies at a discount.

The second point that supports the bullish case for the NSE is that the fears surrounding the economy (falling oil prices, uncertainty in the political landscape and post-election violence) has already been priced into stocks. Hence, we can expect stocks to rebound with an impressive momentum if the election holds peacefully and the nation does not experience post-election crises.

The Bearish Case for the NSE

The lead point that supports the bearish case of the NSE is the possibility of a massive market selloff as investors go defensive ahead of the elections next month. For one, we can reasonably expect foreign investors to pull out their cash due to the uncertainties that could surround the economy after the elections. The worst part is that local investors are not heavily invested in the NSE and the drain of foreign capital could be a catalyst for local investors to start selling.

Secondly, the U.S economy continues to improve as the U.S unemployment falls to 4-year lows. The positive employment situation could encourage the Feds to raise interest rates and thereby make the purchase of U.S. low-risk investments (bonds, treasury bills, debt etc.) more attractive to foreign investors than Nigerian Equities.

Thirdly, oil prices continue to fall, leading to further declines in the value of the Naira and the Nigerian government might need to introduce austerity measures to keep the economy afloat. Austerity measures will put a drain on the capital markets and we can reasonably expect investors to pull out of stocks into more stable investments such as real estate.

Final Words

The aforementioned points are by no means an exhaustive compilation of the bullish and bearish case for the NSE. However, I opine that 2015 is set to be a mixed year for Nigerian equities. We can expect the bearish hold on the market to continue toward the first half of the year and we can expect the bullish momentum to return to the market in the second half of the year.
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