During the meltdown week, over Sh120 billion of shareholder value went up in smoke.
Everybody saw her or at least read about her moves during last week’s capitulation. It’s the Lady in Red again. And she was fast and furious; the Nairobi Securities Exchange (NSE) dropped over 200 points inside a week’s session, “fear” index reached extreme territory as shares plummeted by 11.5 percent.
Panicked investors were left confused trying to figure out whether the plunge would keep tracking.
To call the capitulation unkind to the market would be a massive understatement. It was a meltdown. Over Sh120 billion of shareholder value went up in smoke taking year-to-date market performance to 20 percent loss.
How worried are investors right now? I think the hashtag that trended on Twitter: #GFC2 (Global Financial Crisis 2) pretty much captured the mood.
As expected, the local bourse was set to take a hit from the coronavirus panic, which has jolted global stock markets, with steep drops in most major indexes.
Investors dashed to stock up on cash and other assets considered safe in a downturn to ride out the chaos. As a result, the NSE closed the week at 2,124 points — its lowest since March 2009.
Treasury yields stood near record lows with the 364-day paper, in particular, recording the highest subscription rate at over 400 percent partially indicating the flight to safety.
Yields on the 182-364 day papers stood at 8.1 percent and 9.1 percent respectively, down from 8.2 percent and 9.3 percent, in the same order, as recorded in the previous week.
Going forward, global volatility is expected to remain high as liquidity becomes scarce.
Bond yields (which rise when price falls) are expected to go up as underlying concerns regarding the economic fallout from the coronavirus on credit markets broadly remain.
Gold, usually a safe harbour in times of panic, has fallen by 8.7 percent indicating few dependable places for investors to hide.
The VIX index (much renowned fear “gauge”), which hit its highest point since the 2008 financial crisis, is expected to remain elevated.
The wild child of markets — Bitcoin — also fell by 25 percent. Central banks, on the other hand, have cut interest rates and flooded the banking system with trillions of dollars of liquidity — measures which are yet to restore calm.
What does that mean for risky assets? A bottom won’t be reached until investors lose all hope. This means investors will need to brace for more uncertainty and big market swings ahead.
Although it may be too tempting to start picking up some discounted names (the NSE having taken-out all near-by key pivots), with the underlying issue — the coronavirus — still unchecked, any bullish moves would be premature.
It would certainly take a while before a resolution is found. As the “Lady in Red” continues to cause anguish and heartbreaks, it’ll be prudent to stay alert and watch out for that rebound.
I guess the takeaway from this article is this: don’t stand too far from the sidelines. I know she may be gone for now and your world has turned blue, but cheer up child, the truth is that she always comes back.
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