By Chinenye Anuforo and Chinwendu Obienyi
Just as relief seem to be coming the way of Nigerian investors with recent stock market rallies since last April, distress signals on the likelihood of another global market crash in the horizon recently triggering fresh panic among retail investors. In the said investors were warned that the globe exchanges are set for another devastating crash.
Barry James, world renowned stock market expert and President of James Advantage Fund, who threw the latest salvo, said the global market was “upside down” and in the “latter stages” of an economic meltdown.
“In a flashing red warning, share valuations have soared to their second-highest ever level, suggesting that many stock investments are over-bought and could be in bubble territory,” Express, a US newspaper, had reported.
The only other time indicators were at this level was before the dot com crash at the turn of the millennium.
James said although there are currently good signs, there are vital concerns for the future.
Speaking on CNBC, he said, “even though (the market) looks beautiful, setting new highs, good momentum and earnings have been coming in good, here are some of the things we’re worried about.
“Number one is valuation levels. If we look at cyclically adjusted P/E (Price Earnings), we went back to 1994 and researched team data that said there’s about a one in two times that the market was down in the next 12 months, and about one out of three times it was down more than 10 per cent.
“Also, we see that the market is upside down. In the 18 months ending in June, we saw companies that had no earnings, they were losing money, outperforming those that were making money and Tesla is a prime example of that.”
He added: “It doesn’t mean that we’ll see a volcanic eruption in the immediate future, and these market peaks take a long time, but we’re definitely in the latter stages of this market advance. We’re going to see the inevitable correction; I just wish I could say I knew when.”
Stock markets in both the United States and Britain have continually topped their highest ever levels in recent months. But experts are now worried that history is about to repeat itself.
In fact, before James’ prediction, several notable economists and distinguished investors have already warned of a stock market crash.
Jim Rogers, who founded the Quantum Fund with George Soros, went apocalyptic when he said, “a $68 trillion ‘biblical’ collapse is poised to wipe out millions of Americans.”
Mark Faber, Dr. Doom himself, recently told CNBC that “investors are on the Titanic” and stocks are about to “endure a gut-wrenching drop that would rival the greatest crashes in stock market history.”
And the prophetic economist, Andrew Smithers, warns, “US stocks are now about 80 per cent overvalued.” He backs up his prediction using a ratio, which proves that, “the only time in history stocks were this risky was 1929 and 1999. And we all know what happened next. Stocks fell by 89 per cent and 50 per cent, respectively.”
But the warning that should send chills down anyone’s spine is that of James Dale Davidson. Davidson is the famed economist who correctly predicted the stock market collapse of 1999 and 2007.
Davidson warned, “there are three key economic indicators screaming sell. They don’t imply that a 50 per cent collapse is looming – it’s already at our doorstep.” And if Davidson calls for a 50 per cent market correction, one should pay heed.
However, Nigeria’s stock market analysts have been reacting to the report since it broke. For instance, the Chief Executive Officer, Cranes Securities Limited, Mr. Mike Ezeh, warned that the above predictions should not be neglected since the Nigerian stock market has been internationalised.
He said, “experts make their predictions after careful analysis and most times, their predictions come as a result of concerted study and usually their predictions come to pass. I am not saying that our market is going to crash again like in 2008 but we do not operate in isolation. We are running a globalised market. So, we cannot dissociate our market from what happens in other climes.”
Similarly, the Chief Executive Officer, Highcap Securities Limited, Mr. David Adonri, pointed out that the recent warning by Barry James of imminent global crash of the stock market is timely and justified.
He said, “his three main reasons include that stocks are already in the asset bubble territory in the US, UK and other global markets; P/E ratios are generally high and companies making losses are outperforming those making profits.
“These are vital signs that market correction is imminent. Any crash in the global market will certainly be transmitted to our domestic market through contagion.”
For his part, founder, Independent Shareholders Association of Nigeria (ISAN), Sunny Nwosu said, “The issue is that Nigerian capital market is an emerging market. In most cases what happens in the other side of the developed markets sometimes don’t affect the Nigerian market.Sometimes it may even affect it and it could become worse, so it depends on the fact that global warning is coming and therefore those who are managers here will then know how to manage the situation.