From the United States and the United Kingdom to Nigeria, various markets are witnessing a massive decline, threatening global investments.
The impending recession, high inflation and high interest rates are making things more difficult for businesses and individuals. The world seems to be plunged into an economic crisis. In one of its reports, the World Bank said the world could be heading for a global recession in 2023 and a series of financial crises in emerging markets and developing economies.
This is the result of the simultaneous raising of interest rates in response to inflation by central banks around the world. In a statement in September, World Bank Group President David Malpass said: “Global growth is slowing sharply, with further slowing likely as more countries enter recession. My deep concern is that these trends continue, with devastating lasting consequences for people in emerging markets and developing economies. »
Last month it was reported that the S&P 500 had closed at its lowest level in 2022 and the Dow Jones Industrial Average had slipped into a bear market as interest rates rose and turmoil rocked global currencies. .
Likewise, the ride has been tough for the Nigerian stock market. The PUNCH recently reported that the Nigerian stock market lost N1.48 billion in the third quarter of 2022 as investors shifted their investments towards fixed market instruments.
The loss came as the stock market saw an interest rate hike to 15.5%, the third consecutive rate hike and the highest since the MPC replaced minimum rediscount rates with the monetary director in 2006.
In The punch report, it was noted that the stock market in the first half of 2022 maintained positive momentum compared to the previous year in the first half of 2022 with a return of 21.3% on the impressive profits of listed companies.
From a quarterly perspective, the market sentiment was bullish in both quarters, with the first quarter posting a 10.3% return higher than the second quarter’s 9.9%.
However, as the market entered the third quarter with the rise in MPR, investors began to take advantage of rising yields in the fixed income sector while dumping their stocks. The All Share Index, which tracks the general market movement of all listed stocks, lost 5.39% to end the third quarter on September 30, 2022 at 49,024.16 basis points, from 51,817.59 points at from which it opened its negotiations on July 1, 2022.
The total market value of outstanding shares of listed companies fell by N1.484tn, closing down at N26.451tn, from the opening value of N27.935 on 1 July 2022. The stock market between June and September witnessed an aggressive profit from investors. -take in the middle of the policy of the apex bank to fight against the constant increase in the rate of inflation.
The stock market in September depreciated 429 billion naira or 1.6% month-on-month to 26.451 billion naira from 26.88 billion naira when it opened for trading, while ASI NGX fell 1.63% to 49,024.16 basis points from 49,836.51 basis points. it opened for trade.
Speaking to PUNCH on stock market performance, Vice President, Highcap Securities, Mr. David Adonri, said: “The losses suffered by the equity market are based on the movement of financial assets in stocks, which depend micro-economic conditions and monetary policies.
“In 2020, the CBN embarked on expansionary monetary policies to expand the money supply, and the stock market appreciated massively.
“But now that we have inflation and the CBN has decided to raise monetary policies, we also see the impact on equities, causing financial assets to move from equities. That is why the market lost last month.
Wyoming Capital and Partners CEO Tajudeen Olayinka also said the September decline was the result of a prolonged revaluation of securities in the markets and instruments by investors.
“Investors reacted strongly to three rapid successions of MPR increases, starting with 13% in May, 14% in July and 15.5% in September.
“September 2022 was quite dramatic as investors exercised extreme caution in withholding new equity investments in reaction to an aggressive rise in inflation (20.52%) in August 2022.
“There are simply too many headwinds for the securities market right now, and more and more investors are becoming increasingly fearful, especially when it comes to rising inflation.
“But given the low share price, it won’t be long before the market is back on the path to a gradual recovery. We should expect a long-term bull market. »
In an email newsletter, “Rich Dad Poor Dad” author Robert Kiyosaki warned that the world would soon experience a historic market crash. “It’s going to be the biggest crash of all time,” he said. More wealth will be transferred than ever before in history. However, Kiyosaki recently said that this crash provides buying opportunities for those who want to build wealth.
“It’s time for the poor to get rich,” he said.
“Stocks, bonds, mutual funds, ETFs and real estate are crashing as expected. Millions will be wiped out. But thousands of poor and middle class people will become incredibly rich.
According to Kiyosaki, he had personally capitalized on the housing bubble crash of the mid-2000s.
In line with what Kiyosaki said, a study by the Ned Davis Research Group looked at 28 global crises over the past hundred years, from the German invasion of France in World War II to the terrorist attacks of 9/11. According to the study, markets overreacted and fell too far for each crisis, but recovered soon after. The study adds that investors who sold out of fear found themselves forced to buy back their portfolios at higher prices, while patient investors were rewarded.
Reacting to this, a research analyst at Atlas Portfolios Limited, Olaide Baanu, claimed that the increase in interest rates had contributed to the existing crisis in the global market.
He said: “One of the reasons for the crash is that central banks around the world are raising their interest rates. It affects the returns of fixed income securities and money market instruments. As a result, investors are currently shifting away from equities towards fixed income securities and the money market. This is why we are witnessing the crash of these markets.
Baanu noted that people who now invest in the stock market may end up cashing out.
“If you notice that the World Bank has told central banks that there will probably be a recession next year because of this increase in interest rates.
“If the recession starts to kick in, they might start easing high interest rates by next year in order to grow the economy, and people will go back to stock markets and the like.
“So people who invest in the stock market as it is now can take money out of the market when the time comes,” he said.
Baanu also warned that investors should be careful when investing money in the market during a crisis.
He said: “But investors should be careful. They should be interested in companies that are performing well in terms of fundamentals and stock prices. Look at those who have been low this period in order to create significant returns for them.
Managing Director/Chief Executive of Cowry Asset Management Limited, Mr Johnson Chukwu, agreed that when assets were down, those with the resources could take advantage of the market.
He said: “When asset prices go down, people who have the resources should come in.”
Chukwu added, “It’s just a market panic we’re seeing as a result of the war in Ukraine, and the war won’t last forever. It’s just a logical thing that anyone with the right advice and resources should come in and buy.
He also noted that rising interest rates were affecting the market.
An investment research analyst at Meristem Securities Limited, Mr. Damilare Ojo, identified the case of contrarian investors who buy when the market crashes.
He said: “One thing that is certain in investing is that we have contrarian investors who when everyone is selling and the market is crashing, they are buying.
“If an investor is a contrarian investor, of course, when the market crashes, that’s a good time to enter the market.”
However, he cautioned that this was not advice for all investors, stressing the need for investors to assess their risk appetite.
Ojo said: “But this is not general advice to give to anyone, as every investor needs to understand their risk appetite. It’s because sometimes the market crashes, you don’t know when it’s going to change. You can even burn your hands at this time.
He also insisted on the need to be patient because the returns on investment will be in the long term.
“Generally, for long-term investors, this should be a good time to enter the market. But this is not general advice that I will give to every investor. Each person should assess their risk appetite and time horizon. of investment.
“If you just want to cash in the short term, I don’t think now is a good time to buy. But if you’re playing long term, it can be a good time. Some stocks, for example, are at falling levels they haven’t gone down to in a long time, and we know that from where they are right now, the only long-term path is a long one,” Ojo said.
Head of Financial Institutions Rating at Agusto & Co, Ayokunle Olubunmi, stressed the need for patience when investing during a crisis.
He said: “The question is, do you have what we call the patience or the waiting capital? Do you have funds that you can set aside that you won’t need in the short term? This is because, unfortunately, the way things are going, no one can say how long the recession will last. Some even say things will get worse before they get better. It’s a good strategy, but you have to be able to wait a bit before things turn around.