The Nigerian Stock Exchange has been bearish over the past few months, which had led to panic selling by lots of investors. The authorities of the NSE also panicked a few weeks ago when they introduced a price floor on all share prices for one week. The prices of stocks could rise but they were not allowed to fall. This was in a bid to calm investors' nerve and to force the bull back into the market. I was not too happy with the intervention and so many other analyst were also against the idea. The market is supposed to be efficient, since it works with demand and supply, and with time it was supposed to get a footing. There was an initial rise in the stock index in that particular week only for the bears to return in full force when the embargo was lifted.
The stock index had lost value consistently everyday over the past nine sessions until today when it eventually gained. It seems as if an equilibrium has finally been reached and the stock market is about to go flat and trade laterally until the bulls arrive.
I have decided to analyze the performance of the Nigerian Stock Market over the past 11 years and use it to predict what the year 2008 has in stock for us:
This information gives a standard deviation of 31.08% with a mean return of 21.2%. This means that we are involved in a high risk market but not very high risk because the probability of getting a positive return is higher than a negative return. I expect the market to return anything between -9.88% and 52.28% this year using a conservative figure of one standard deviation.
I believe the market YTD is around -5.3% from a high of about 20% earlier in the year. If the downward turn continues till it gets to the region of -10%, I expect a rebound and if the market trends are anything to go by, rebounds are always higher than the preceding lows, and based on that I will bet on a conservative figure of about 15 - 20% returns by year end.
My admonition is as before. Keep a calm head, if you have stocks with good fundamentals, as people lose their heads getting out of stocks because when the rebound comes, those that are rushing out will start rushing in but then it will be too late to catch up with a moving train.
People have come up with all sorts of reasons why the market is dropping, but then it was bound to happen anyway. This is supposed to be the planting season for a bountiful harvest in the future.