Is the NSE really the talk of the town?

The Nigerian Stock Exchange (NSE) is currently posting large gains week after week. Naira Insider has been vocal in its belief that the fundamentals are not strong. So the question is, why is the market posting such large gains?

The answer can be found in two places.

Firstly, the simple and age old statement that markets are driven fear and greed. This means sentiment not analysis. Traders, individuals, institutions and foreigners hear from some deluded sources that the grenadiers of recovery can be seen and they dive into the markets not wanting to miss out on the rise.

Today’s Youth have an acronym for that – FOMO – Fear of Missing Out.

This demonstration of the sentiment of greed is generally without foundation in analysis.

This does not exist explain the whole story though.

The other factor at work here is the news that banks want to improve their asset position and sure up their balance sheets against bad debt and other risk weighed assets.

The banks need the value of their holdings to rise. One tried and tested method of doing this is to set off a feeding frenzy in the stock market having bought at the bottom.

In an illiquid and manipulated market like the NSE, this is easy to achieve as only a small volume of buying and selling will set off a chain reaction in the market.

The individuals and institutions then buy and sell to each other in a circular fashion and the price gets increased at each exchange of hands.

And there we have it. Money is created from nothing. Balance sheets look great. Banks look stable.

Even some foreign investors have followed and dived back into the market. But don’t be fooled because their volumes are not as significant as the Central Bank of Nigeria (CBN) and be the banks would have you believe.

If the foreign investment dollars pouring into the market were that significant, the Naira would be strengthening rapidly and CBN would not need to keep pumping so much dollars into the foreign exchange market.

So to Naira Insider, whilst the increase in the NSE Index is undoubtedly fact, we consider its premise, Fake News driven by manipulation and falsehoods.

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