The Nigerian capital market has in recent times being experiencing a downturn trend that has set investors on the edge and increased their fears about the safety of their capital. The Nigerian capital market has been known as one of those emerging markets that can deliver superior returns having attained an all high index of 10trillion this year which goes to demonstrate investors confidence in the market and the buoyancy of activities.
However this has not been the same since the 2nd quarter of this year because there has been a prolonged bearish market with many stocks experiencing sharp declines in their price. A bearish market has been defined as a situation when a market undergoes a long period of decline in price of stocks generally, usually 10% or more.
Globally, different markets have been experiencing their own downturn, because research has revealed that in recent times too other markets have suffered the same fate like we are seeing now, for instance a look at the Dow Jones and Nasdaq in the USA,FTSE in London, Hang Seng market in Asia and even other African market such as in Botswana have all lost 10-15% in their all share index. Aside from the factors responsible for the world market dip such as the ever increasing price of crude oil occasioned by short supply of the commodity in the world market, but our own market depression can be linked to a lot of factors such as the recent hike in MPR by CBN to 10.25% ,suspension of margin facility to firms and High Net worth Individuals, primary market and private placement activities coupled with market correction exercise and the recent regulatory policies by SEC and NSE.
No doubt these various factors have affected the market negatively nearly wiping off the shine off the Nigerian capital market recently celebrated as one of the best in terms of high return on investment by investors and capital market operators alike. In fact the current trend has deepened the appetite of investors particularly speculators who are joined the teaming number of sellers thereby resulting to further high selling and diping of the stock prices.
There is no gain denying the fact that some investors have lost a handsome amount of money during this period especially those that have borrowed to trade when the market started to experience this decline but that is not to say it's the best time to cash out rather certain strategies should be adopted to reposition your portfolio in order to mitigate against the effect the declining trend would have had on your current portfolio. Some of those strategies to adopt are what we shall review briefly
Use Your Own Funds
In a declining market, it is not advisable to go borrowing as some investors would do moreso that interest rate is going higher with the hike in MPR by the CBN since this will definitely increase the cost of investing in the secondary market. The sure bet have always been to keep to what you already have in your kitty and review all loan portfolio so as not to record more losses less the market dips further.
Invest in Primary/Private Placements
Investors should take advantage of primary offerings since they will normally come at a discount and private placement considered to have strong fundamentals for growth, even though we now know that due to the recent policy by NSE to list all companies doing private placement on the floor at their private placement price we are unlikely to experience the usual surge in price upon the listing of the stock as it was in the past. In addition current trend have revealed there exist a synmetric relationship between the primary and the secondary market whenever companies are doing their public offering, the secondary market normally slows down due to lot of investors selling to partake in the offers as was experienced last year. Therefore in such period investors should always envisage such decline and sell a part of their holdings to take positions in those offers especially private placements with future prospects to grow because upon listing there likely going to be a pull of activities around the stock since it will continue to attract investor's attention for sometime.
Review Your Portfolio
There is no gain keeping a stock in your portfolio with no tendency to recover back what you have lost in the nearest period, thus during a declining market review your portfolio by selling all non-performing stocks and re investing them in stocks with strong fundamentals that may have lost 25% or more of its original price before the downturn set in because when the market recovers you will benefit greatly from the recovery than if you had kept those non-performing stocks in.
Again, limit yourself to sectors that are likely to be affected positively by the recovery for instance if the market decline was caused by cash crunch in the economy due to non release of budgetary allocation, all you need do is to look at the sector highly favored by the budget and take position because once the recovery begins, there every like hood to experience a jump in prices of stocks in that sector.
Keep an Eye on Regulatory Policies
It is quite important to put your gaze on changes in regulators policies since it has been observed that certain policies or inconsistency in policy can cause a serious drift in the market towards the negative direction, hence investors should be concerned on what the regulators are saying or doing to avoid been caught in between.
Conclusion
There is no doubt that during a declining period most investors become despondent and jittery but it takes a brave heart and a knowledgeable mind to invest during a period like this. In fact this is about the best period to buy more stocks because prices of those stocks with good fundamentals can never be gotten cheaper than this. Besides that limiting once's exposure to risk require quite a handsome level of information about the stock one is about to invest in. And beyond that each investor must shun sentiments in choosing stocks, conduct some basic research and adopt the wait and see approach to see the behavioural pattern of that stock for a week before taking position.
