The price drop in the Nigerian stock market has not abated since March 2008. In the first few months of the price drop, the media was awash with news about the reason for the downward trend that at that time it was excusable and bearable. Investors thought that the exit of foreign investors from the market, although unwanted at the time, could not prolong the reign of the bears. The media had induced the reign of the bears to the exit of said investors.
Not long after, when the bears refused to let up, the cause of the bears’ reign was blamed on the global collapse due to the crisis in the US financial sector. In August 2008, the brief market recovery gave investors hope that the nightmare was over. Investors can count on the financial crisis saving the Nigerian stock market when the financial crisis began in 2007. That year was the most interesting in the annals of the multi-troubled stock market, so it was not hard to expect a quick recovery. from the market from local investors remained interested in the market.
That was a wrong expectation. It will take more unexpected price declines beyond prime stock prices to reveal the true internal reason for the worst price decline in stock market history. In January 2009 alone, for example, the market lost more than 3 trillion naira.
Growing discontent and public outrage led to the disclosure of the real reason for the unprecedented price drop by the Securities and Exchange Commission, which accused banks of hiding their exposure to marginal debt without strong collateral. It was revealed that the brokerage houses used shares as collateral. The banks were said to have margin debt of more than 388 billion naira from stockbrokerage firms that have had difficulty repaying the loan.
To minimize losses, banks proceeded to aggressively divest shares held by brokerage firms. This singular action led to stock sell-offs by other investors who saw the banks’ action as a loss of confidence in the market. The public has increased confidence in the banks’ strong capital base since the subsequent consolidation. Seeing banks exit the market was a doomsday sign for other investors who continued to pressure their brokers to sell their shares. Confidence is now at its lowest point. No one really knows when the bulls will return. However, one thing is certain: the lessons learned from the price crash cannot be quickly forgotten.