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The NSE and COVID-19

The NSE and COVID-19

Beyond the wet markets of Wuhan, the coronavirus has ravaged other markets, economies and lives in at least 210 countries[1] as at 10th May 2020. It has caused several deaths, millions of job losses, lulls in economies, and it comes as no surprise that stock markets all over the world are not immune to its impact. Its blow has been so severe that it has been likened to the 2008 global recession. The Nigerian Stock Exchange (NSE) has also not been spared as it has suffered huge losses, though it seems to have slightly recovered. 

On 28th February, less than 24 hours after the first confirmed case of coronavirus in Nigeria, the NSE hit its lowest threshold in 2020, ending with only 2 gainers and 41 losers at the end of the trading day.[2] This was further exacerbated on 10th March when it shed N656 billion off the market capitalization making it the highest daily loss the market had experienced in 4 years.[3] Between 9th and 12th March, the market suffered a loss of over N1 trillion[4] as there were panic sell-offs due to factors relating to the pandemic such as declining crude oil prices, devaluation of the Naira, uncertainties concerning the impact of the virus on the importation of goods and the Nigerian economy. The table below shows a progression of the market capitalization from 28th February to 30th April. There was a 19.5% decline in the first 5 weeks, with slight improvements in April.

NSE Market Capitalization between February 28, 2020 and April 30, 2020

There were speculations that the index circuit breaker would be activated to protect investors from further losses.[1] The index circuit breaker is a mechanism triggered by a stock exchange to restore equilibrium between buyers and sellers during periods of extraordinary volatility in the equities market. If there is a 5% or higher rise or decline in the All Share Index (ASI) compared to the previous trading day’s closing value, then the circuit breaker will be triggered, initiating a 30-minute halt in trading activities[2]. Although stock values have plunged and taken several hits, the market has not suffered a 5% decline in ASI between two consecutive trading days.

To protect its employees and prevent the further spread of the coronavirus, the NSE temporarily closed its trading floors on 25th March 2020, and commenced a 30-day remote trading work plan, which has been extended, where dealing members trade remotely through its electronic platforms such as Fix Protocol or Xnet.[3] The plan does not affect trading as it operates a fully electronic marketplace for bonds, equities and exchange traded products (ETP) on its Automated Trading System (ATS) platform.

There is no doubt that the Nigeria Stock Exchange has felt the impact of the virus, even as it appears to be recovering. Despite the losses suffered, word on the street is that now is a good time to invest in the market. What do you think?

[1] (Business AM, 2020)

[2] (ProShare, 2020)

[3] (Channels Television, 2020)

[1] (Aljazeera, 2020)

[2] (Tribune, 2020)

[3] (Premium Times, 2020)

[4] (Guardian, 2020)

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