Nigerian stocks and a related country-specific exchange traded fund are trading in a bear market as the slump in the energy market pummeled Africa’s largest oil producer and a depreciating local currency scares away foreign investments.
The Global X Nigeria Index ETF (NYSEArca: NGE) has plunged about 29% since its July 10 high.
On Friday, the Nigerian Stock Exchange All Share Index fell 3.7% to 33,225.75, drudging through its 12th day of declines in its longest losing streak since January 2009, Bloomberg reports. The index is now trading 23% below its July 9 high, making it one of the worst performing areas of the world.
On the Nigerian index, banks, manufacturers and oil companies were among the worst performers.
Pressuring the Nigerian equities market, the falling oil prices are hurting the country’s export earnings. Brent crude oil futures are now trading around $83.4 per barrel. The United States Brent Oil Fund (NYSEArca: BNO), which tracks front-month Brent futures, has declined 22.4% over the past three months. [No Surprise: OPEC Country ETFs Crushed by Oil’s Slide]
“There is a risk to the investment of foreign portfolio investors by the fall in oil price. In order to preserve their capital, they’re dumping Nigerian stocks,” Sewa Wusu, an analyst at Sterling Capital Markets, said in the article. “The ability of the central bank to keep up with the intervention will depend on the extent of pressure it gets.”
Meanwhile, the country’s naira currency has touched a record low against the U.S. dollar, which is also pushing away foreign investments. For instance, NGE is susceptible to currency risks, so a depreciating naira currency would translate to lower U.S. dollar-denominated returns.
“We are seeing some panic selling from international institutional holders and that’s putting a lot of pressure on domestic equities,” Kato Mukuru, the head of equity research at Exotix Partners LLP, said in the article.
However, the Central Bank of Nigeria was selling dollars to the market in an attempt to prop up the local currency. Razia Khan, head of Africa macroeconomic research at Standard Chartered Plc, argues that the central bank is committed to defending the naira currency and provide currency stability, citing a conversation with central bank governor Godwin Emefiele.
Global X Nigeria Index ETF
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Max Chen contributed to this article.