Is a stock market crash possible in Nigeria?

[oseitutu]

According to world authorities, the Nigerian Banking sector is the fastest growing in Africa. That may imply that if the rate of growth slows down or stops or even reverses, there may be capital flight and a cataclysmic collapse. So is it a good thing that our banking sector is so vibrant at the moment. I think other sectors should join in quickly otherwise we will soon be in trouble. I hope others in this forum are also thinking about stock market crashes. It will happen one day....definitely!

[Stacks]

Not very fond of pessimists..

[Miss_Risky]

@Stacks - Reality bites. It's the nature of the beast!

There's bound to be peaks and troughs in the stock market. Maybe it's a natural progression; market correction or could even be the coming of age of a stock market to experience a crash. Every major economy has at one time or another experienced a crash be it due to the depression or inflation etc. While this could be a major or minor crash, the beauty of it is that there is always a recovery. Some recoveries may take longer than others but in the long run, there is an upward market trend before yep..., another crash.

The other thing to consider is that stock market crashes also present opportunities to buy into companies at a big discount depending on how bad the crash was. So it's not all doom and gloom.

The fear/knowledge/expectation of a crash should help you shape your investment goals in some ways. Although I haven't done so yet, I have to review my portfolio to ensure that my major holdings are in strong solid companies that may not give me the instant 1000% return but will not cause me to go bankrupt in a crash either. All my speculative trading will be done with a low percentage of my funds. Hopefully, that should cushion any fall and not leave me over exposed to volatile stocks.

As someone said to me, it's not a question of if but when it will happen on the NSE. We just have to position ourselves in the next couple of years to prepare for the worst.

Those that have crystal balls in the house, please tell us what you see...

[whatsup]

Thigs were awaful yesterday and are not looking good today (live trading update on NSE website)

You need liver; the bottom line is you can't easily bail out even if you wanted to as there is no market maker that will always be ready to purchase what you want to offload. Some will be able to sell, most will have to go long, wait and eventually things will recover. Others will see it as a money making oppurtunity.

The skrike is a major worry, but the government has seemed to be meeting the demands of the labour unions.

Dear God, please help. Let my investment toil not be in vain.

[c kenneths]

I do not want to sound very optimistic but am eagerly waiting for a stock market crash here in the NSE, I will only be sad if i dont have enough cash to buy myself a stack of cheap stocks.

There must be a recovery, and i will be smiling all the way to the bank !

[SKO]

...that's what a crash is to the savvy investor. With that mindset, anyway you play it, you're bound to win eventually.

[oseitutu]

Originally Posted by c kenneths

I do not want to sound very optimistic but am eagerly waiting for a stock market crash here in the NSE, I will only be sad if i dont have enough cash to buy myself a stack of cheap stocks.

There must be a recovery, and i will be smiling all the way to the bank !

Yes there must be recovery after every crash but remember that in crashes, things change and 'THE BIGGER THE KILL, THE HEAVIER THE FALL'. Thus the big fish whom people may rush to go and acquire their stocks may never recover and in fact may eventually be eaten up by ertwhile smaller fish. Say a large corporation may lose so much that it has to break up into small bits and be acquired by other companies. At the recovery phase of a crash usually, new top players emerge. We have to be wary of that. The reason why I started this thread is to make us aware that it is possible. I am not a pessimist, only being realistic.

[pesadilla]

a crash is not yet at sight,there is still much room for growth,the banking stock will start to cool off, while other neglected sectors will get the attention they have been craving for,time to look dip and position yourself.
goodluck

[Curious]

My view is that there is still some growth likely to happen in Q3 this year even in banking (though some of the more poplular banks seem to be running out of steam). I suspect a slight slow down in Q4. If a crash is going to happen, I dont think it'll be this year. All this is subject to political mandates/stability.

[c kenneths]

Oseitutu, Idont see you as a pessemist, i even like this thread you started, kind of remind us not to become complacent just because we have had an unbelievable bull run for so long, am only saying that the gains far outweighs the loses of any market crash, i only pray to be in cash then.

[Gengen]

I do not want to take sides on whether looking at a stock crash as being pessimistic, realistic, probabilistic, optimistic, etc.

I will like to change the direction slightly and ask the following questions to guide us and academically determine, suggest, propose, fortell, etc, or if possible, 'crstall ball' the direction of the Nigerian stock exchange in the short term (~ next one year)


1. What are the early symptoms of a stock crash? What do you watch out for? Are these showing in the NSE?

2. What is the probablity of stock crash when an economy is aggressively pursuing higher participation of the private sector and promoting companies going public? (I believe Nigerian is doing this)

3. Is stock crash likely when an "average peforming" listed company achieves 50% improvement on year on year profit? Is this not much better than average world performance?

4. Is stock crash likely when this good performance is attracting foreign investors despite "negative foreign media" coverage?

5. Is the average Nigerian Stock under or over priced comparatively to European/American stocks using Price to Earning ratio (PE) as evaluation guide? (Gurus reply)

With these questions, I believe with 80% confidence, that a stock crash is not likely in the short term (~ next one year).

HOWEVER, NO HUMAN BEING HAS BEEN ABLE TO ACCURATELY PREDICT THE STOCK MARKET WITH 100% SUCCESS!!! This is the basis of my 20% doubt.

[bwalaman]

…I do not think a crash in the “western market” sense is not yet feasible… google Stock Market Crash for an update.

This is where we have to celebrate the in-efficiencies of the NSE , our brokers and the system…

… for a crash to occur, a certain level of systemization and efficiency is required- we can confidently say and we confidently know that the Nigerian investment milieu (NSE, CSCS, brokers, information etc) does not have this “perfection”. Just refer to the Threads on NASCON and the one on Brokers to see how inefficient the NSE / Nigerian investment is…

So let’s celebrate our weaknesses… of course and exploit it… too.

Caveat…

1. A market correction is possible- the market finding a balance for particular stock is possible… you only have to look at DSR to see this trend, despite the excitement about Dangote… this is in fact happening week in – week out. Don’t be fooled, 25-35 shares loss value every week.

2. Red flag- all the FDI that is coming in and I suspect most of it is in “prefer shares” can do damage if they decide to rapidly withdraw…

What do you / we think???

[oseitutu]

Originally Posted by bwalaman

…I do not think a crash in the “western market” sense is not yet feasible… google Stock Market Crash for an update.

This is where we have to celebrate the in-efficiencies of the NSE , our brokers and the system…

… for a crash to occur, a certain level of systemization and efficiency is required- we can confidently say and we confidently know that the Nigerian investment milieu (NSE, CSCS, brokers, information etc) does not have this “perfection”. Just refer to the Threads on NASCON and the one on Brokers to see how inefficient the NSE / Nigerian investment is…

So let’s celebrate our weaknesses… of course and exploit it… too.

Caveat…

1. A market correction is possible- the market finding a balance for particular stock is possible… you only have to look at DSR to see this trend, despite the excitement about Dangote… this is in fact happening week in – week out. Don’t be fooled, 25-35 shares loss value every week.

2. Red flag- all the FDI that is coming in and I suspect most of it is in “prefer shares” can do damage if they decide to rapidly withdraw…

What do you / we think???

What I think is that Western Style Crash may not happen soon, however, Nigerian Style crash can happen .....anytime but not necessarily soon.
If capital flies away and the good credit we have is destroyed by a few fools, these so called foreign investors will cut their losses and run; our inexperienced medium/small scale investors will panick because they are very inexperienced with rapid downtrends in markets; newcomers will retreat to old trusted businesses like Business Centre and Supply.
It may take three to six months, but at the end of it, the market will be at a value 20 or even 10% of what it previously was.
Work done = crash!

[bwalaman]

...all please correct me if I am wrong here...if it happens in 3 - 6 months, it is not a crash... it is a long bear market.

I stand to be corrected on this...

On you point on capital flight, thats the second caveat... FDI- Foreign Direct Investment, is foreign investment...so that point is made already. The FDI is not so much the danger, but what type of FDI...

[bwalaman]

Two things I didn’t touch on Gengen's…

1. The appearance of excitement or over valued shares… look at the BRIC countries (Brazil, Russia, India and China) they are generally cooling off higher than where they started- Nigeria etc are actually globally doing better. The BRIC are Emerging Markets while we are Frontier Markets…but we are doing better and I expect us to follow the same general patterns. While the NSE will eventually cool off. How soon will depend on how the political situation develops- if rule of law and the general invest environment becomes stable/better thank today, it will take 3 years, if status quo 2 yrs and if worst 1 year (my thinking here…).

2. On the PE ratio- look at the technical definition of PE and then localize it to the NSE… i.e. compare a particular company to the average PE in its sector on the NSE…and the Niger-guesstimate the rest!!! Check the IBTC stock select, their chart gives this information.

Lastly, do not rely too much on western trends…unfortunately, here we don’t have too much historical qualitative and quantitative information / data / research / analysis on the NSE to go by… in a way, we are doing a small percentage of that here…

What do you think?

[ikpong]

President Clinton told incoming president Bush to be careful of what he was saying about the economy. In essence he was saying that bush would get what he was saying; which he did.

I do not see a crash coming and we should not be calling for one. With the new President making the economy his priority and making moves to solve the Delta crisis, it can only give confidence to foreign investors to invest in Nigeria. A slow down in the Nigerian economy is not yet around the corner. All we need is the govt. providing electricity and addressing transportation problems which would go a long way to improve the macro economy, hence the capital market.

Yes, I am an optimist and Iam optimistic about the Nigerian econmy and the capital market under a stable govemrnment. We have excellent examples from southeast Asia and India.

Ikpong

[olusolakemmy]

i dont see market crashing but i see normal bull and bear interchanging position often, that is a tool for maket correction.

Everybody is buying the idea of stock inbvestment, even my oldmother,whodoes not have formal education now understand what it means to invest in the stock market.

I personaly put the inesting public at 10% of nigerian population, what will happen if the investing public hit 20%? the growth chart of peoples investment will be ponting towards heaven.

so,i dont think its going to happen soon
Now that bear is around, please do invest cause the bull usualy last longer than the bear, remember during the rain of the bull, scarcity is the brokers song of the day

[oseitutu]

Members, please visit wikipedia and read this beautiful essay on stock market crashes.bwalaman is correct. Months to years is bear market, crashes take days. Now looking at our market critically, since only a few people are yet controlling the market, we are at the moment more vulnurable to panic. Having said that, I have strong confidence in NSE. In 10-15 years time we will be leading the SANE countries of Africa.

[c kenneths]

Sometimes I give a serious thought to market crashes and bear runs, which have almost the same effect on the market, market crashes takes a shorter time and leaves a more devastating result. It also comes suddenly, maybe even too sudden for you to take any action, bear runs on the other hand lasts a bit longer but will also wipe some profit from earlier gains, and I have come to the conclusion that sometimes these are necessary market correction tools to consider in pricing stocks.

By this I mean we are all supposed to look at prices when they start to become unsustainable, an outrageous P/E ratio, a too low EPS and other indicators are meant to serve as guides but what we see at the moment is a crowd, hardly educated about market dynamics, making oversized orders, and buying stock simply because they want to invest in the stock market, check out the penny stocks section, some are trading way above their earnings, but investors still bid the prices up on a daily basis.

And as Gengen said earlier, the crowd is growing, I think only about 5- 7 % of Nigerians invest in the markets, but now the awareness is growing, more people are rushing in daily, go to cscs and see all the unopened accouts that are waiting for weeks and you see the market still has room for growth, and as people are dumping, freshers are packing the stock to hold, thereby creating scarcities, which will make it difficult for crashes to occur.

But the NSE seems to have thought this out, they put some measures to hold our market from a sudden heavy crash. The 5 % maximum gain or loss is a nice way to protect innocent newbies in the market from getting their money wiped out.

[oseitutu]

5% is no guarantee! If All-share index loses 5% consecutively for 5 days in a row, na free fall be dat O! The only thing is that Nigeria? they can 'BAN' drop in price and nothing will happen. Look at Transcorp!