Experts explain impact of fuel scarcity on stock market

Nigerian-Stock-Exchange-(1)The lingering fuel scarcity currently being experienced in the country is not only negatively affecting vehicular movement, disrupting transport activities and making the citizens unable to get the commodity to power their generators that every home relies upon to generate electricity, but it is also having ripple effects on the stock market as well.

Though market watchers are of the view that fuel scarcity or movement in the prices of petrol do not reflect in stock market prices and that there is little correlation between the two, but investigation by The Guardian on how the scarcity affects the equities market revealed that the effects, which may not be overt, are not only on the market but the entire economy.

Mr. Tunde Olawale, a stockbroker at the Nigerian Stock Exchange, explained that the scarcity does not directly impact on the market but that the news and display on televisions of vehicles queuing at filling stations for hours to buy fuel always send negative signals to foreign investors that all is not well with our economy.

“The ugly sights of motors on queues at petrol stations and citizens complaining of not getting fuel to buy to do their business can repel potential foreign investors and by extension discourage foreign investment in our stock market. Shortage of fuel does not only affect people, it also affects the efficient operation of even the quoted firms, which are forced to buy fuel from the black market at exorbitant prices to deliver their products to customers. Such unbudgeted expenses can bring down the profits of the firms.”

According to him, the fact that people are forced to be buying fuel at exorbitant price means that the money they could have saved to invest in shares are being spent on fuel. People who are facing unnecessary expenses cannot save and don’t forget that buying shares is investment.

“So, if you do not have enough money you cannot invest. The possible high rate of inflation induced by the development can escalate the cost of operations of listed firms and thus erode their profits and ability to declare dividends to the shareholders at the end of the year.

“Also, retail investors who are unable to get money to buy fuel at the black market rate may resort to selling off their stocks to raise money to do so,” he disclosed.

Mr. Ropo Dada, CEO, Network Capital Limited, said: “Fuel scarcity is one of the pains of devaluation when in actual fact we have not officially devalued our currency. Fuel scarcity means many workers may not work optimally to earn enough income and when they are not able to get sufficient income, there can’t be savings and without savings there is no investment.

“To a foreign investor, this is a sign of underdevelopment, which will certainly affect pricing of our equities. Most investors will exercise caution since scarcity may be a symptom of a systemic problem, which can impact negatively on the overall market. In summary, it will hinder investments.”



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