As Coronavirus (COVID-19) continues to spread around the world, the virus is not only infecting people but also financial markets. Notably, the pressure on financial markets escalated, after the OPEC+ meeting ended in a deadlock, with Saudi Arabia commencing a full-blown crude oil price war. As a ripple effect, the spot Brent crude oil price dropped to a 4-year low (sub $40.0/b levels), prompting investors to pull out funds from risk-assets to safety assets like gold and government treasuries.
Though no fatal case of COVID-19 has been recorded in Nigeria, the equities market has not been spared from the wrenches of the growing panic. So far in the week, the performance of the equities market has declined by 10.3% WTD (within only 3 days of trading), with the NSEASI touching a 4-year low of 23,524.3 points. Notably, foreign as well as local investors ignored the attractive dividend yield some stocks offered and traded against stock-specific fundamentals, as fears of an imminent naira devaluation (key foreign investors’ concern) and contraction of economic activities (key local investors’ concern), among others, amplified risk-off sentiment.
Analyzing the current realities around the virus outbreak, to estimate how long this will last is difficult, given how much is still unknown about the spread of the virus and the lack of a historical precedent. However, given the fact that the current bearish trend is largely event-driven (COVID-19 outbreak), we believe the equity market will be poised for a swift rebound once the impact of the event dissipates. Thus, we advise investors to cautiously take advantage of the dip to average down cost, especially in the fundamentally sound stocks.
