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LequteMan
Guest
According to John Ashbourne, Africa economist at Capital Economics, Nigeria's decision to adopt China's circuit-breaker in a bid to stop the country's stocks from plunging further, is unwise.
The circuit breaker on the Nigerian stock exchange will pause trading for 30 minutes if stock prices fall 5 per cent. Trading will cease for the day if it is triggered twice in a session, or after 1.45pm.
Beijing had abandoned a similar policy this month after just four days, concluding that in a falling market the existence of the circuit breaker encouraged more selling as traders rushed to exit while they could.
“Low oil prices are battering Nigeria’s export-dependent economy, but it’s the government’s market-distorting response that risks pushing the country into a Venezuela-style crisis,” Mr Ashbourne says.
“Nigeria is sliding towards a Venezuela-style FX regime and adopting a Chinese-style stock market circuit breaker. Neither will reassure foreign investors, many of whom seem to be eyeing the exits.”
“The effect is akin to calling last orders at a crowded bar,” Mr Ashbourne says. “It is hardly confidence-inspiring that Nigeria is copying a Chinese policy that is widely seen to have failed.”
He accepts that Nigeria’s circuit breaker may not be as badly designed as the Chinese version. Whereas the NSE All Share index rarely falls by 5 per cent a day, the Shanghai Composite did so a dozen times in 2015. The NSE’s version has not yet been called into action.
Nevertheless, Mr Ashbourne says that using a circuit breaker to shore up the market, rather than to avoid volatility, is “deeply flawed”.
FT
The circuit breaker on the Nigerian stock exchange will pause trading for 30 minutes if stock prices fall 5 per cent. Trading will cease for the day if it is triggered twice in a session, or after 1.45pm.
Beijing had abandoned a similar policy this month after just four days, concluding that in a falling market the existence of the circuit breaker encouraged more selling as traders rushed to exit while they could.
“Low oil prices are battering Nigeria’s export-dependent economy, but it’s the government’s market-distorting response that risks pushing the country into a Venezuela-style crisis,” Mr Ashbourne says.
“Nigeria is sliding towards a Venezuela-style FX regime and adopting a Chinese-style stock market circuit breaker. Neither will reassure foreign investors, many of whom seem to be eyeing the exits.”
“The effect is akin to calling last orders at a crowded bar,” Mr Ashbourne says. “It is hardly confidence-inspiring that Nigeria is copying a Chinese policy that is widely seen to have failed.”
He accepts that Nigeria’s circuit breaker may not be as badly designed as the Chinese version. Whereas the NSE All Share index rarely falls by 5 per cent a day, the Shanghai Composite did so a dozen times in 2015. The NSE’s version has not yet been called into action.
Nevertheless, Mr Ashbourne says that using a circuit breaker to shore up the market, rather than to avoid volatility, is “deeply flawed”.
FT
