As Nigeria continue to grapple with economic challenges, the equities market has maintained a downward slide with investors’ wealth dwinddling by a whopping N1.69 trillion in just three months.
THISDAY analysis of market activity from June to August 2022 revealed that for the month of August, the stock market depreciated by N283billion in market capitalisation, while in July, the market capitalisation went down by N772 billion as investors move to fixed income market that comes with low-risk investment and modest yield, yet above the inflation rate.
The stock market had depreciated by N632.23billion in June to N27.94trillion in market capitalisation.
In terms of tracking the general market movement of all listed equities on NGX, including those listed on the Growth Board, regardless of capitalization, the stock market in August dropped by 1.06 per cent to close at 49,836.51 basis points amid investors’ sentiments.
According to THISDAY findings, the stock market indicator, the NGX All-Share Index depreciated by 2.79 per cent in June 2022 to close at 50,370.25 basis points and in July, dropped by 2.79 per cent to close at 51,817.59 basis points.
Coming into the year, the major concern for global economic growth was the emergence of new strains of the COVID-19 pandemic. However, the war between Russia and Ukraine which posed new supply constraints further restrained growth.
The stock market between June and August 2022 battled hike in the inflation rate (19.64 per cent as of July 2022).
Also, the Central Bank of Nigeria (CBN) increase in its Monetary Policy Rate (MPR) to 14 per cent and a scarcity of foreign exchange led to the outflow of foreign investors.
To buttress this point, foreign investors’ outflow on the floor of the NGX grew by 11.4 per cent Year-on-Year (YoY) to N138.97 billion in seven months of 2022 from N124.75 billion reported in seven months of 2021.
The domestic/foreign investors’ profit-taking in Dangote Cement Plc, BUA Cement Plc, Nestle Nigeria Plc, Zenith Bank Plc, among others stocks impacted negatively on indices on the NGX.
For instance, Dangote Cement dropped by 11.6 per cent to N245 per share as of August 2022 from N277.00 it opened for trading in June to dragged the NGX Industrial index down to 1,777.14 basis points from 2,194.24 basis points it opened for trading in June.
BUA Cement also depreciated to N52.00 per share as of the closing of the market in August from N74.25 it opened for trading in June.
The Banking Index dropped by nearly nine per cent to 387.41 basis points as of August from 425.71 basis points the stock market opened for trading in June.
Profit-taking in Zenith bank dragged its stock price to N21.90 as of August from N23.45 it opened trading in June, while the Guaranty Trust Holding Company (GTCO) Plc dropped to N19.85 per share as of August from N22.55 it traded three months ago.
Nestle Nigeria depreciated to N1,350 per share as of August from N1,400 per share to down NGX Consumer Goods Index by 7.85 per cent to 600.56 as of August 31, 2022 from 651.73 basis points it closed for trading in May 2022.
In addition, profit-taking depreciated the NGX Oil & gas sector by 532.15 basis points as of August from 547.57 basis points it opened for trading in June 2022.
The stock market, thus, maintained positive performance in its Year-till-Date performance, gaining 16.67 per cent in eight months of 2022, driven by some fundamental stocks with impressive corporate earnings.
Capital market analysts expressed that the hike in interest rate and Nigeria’s inflation rate, which has surged to its highest level in more than 16 years, is putting a damper on stock returns as interest rate hikes brightens prospects of the fixed income market.
Nigeria’s high-interest rate environment aimed at reducing inflation continues to make fixed income securities more attractive at the expense of stocks.
In an interview with THISDAY, the Vice president, Highcap Securities Limited, Mr, David Adonri said the stock market commenced declining performance when the Monetary Policy Committee (MPC) of CBN increase the interest rate to 14 per cent.
He noted that other macro economy indicators such as inflation rate, and scarcity of foreign exchange have also diminished demand for stocks as investors moved to fixed income markets.
According to him, “The fundamentals of foreign and domestic macro economy indicators in three months have impacted negatively on the stock market.”
On the stock market performance in September, he explained that, “Situation maybe the same with current happening in global and domestic economy. The Russia/Ukraine war is one of them and the current happening in China as regarding power blackout is causing global anxiety among investors.
“People are afraid that it can cause recession in China and it can increase global inflation and Nigeria is vulnerable to such. Mind you, we have 2023 general election that politicians are commencing campaign from September and we are already experiencing foreign currency scarcity. We are for a serious challenge in the stock market going forward in 2022.”
Reacting, the CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka explained that, “In August 2022, equity market reacted strongly negative to the decision of MPC to hike MPR in quick succession, currently at 14per cent, in response to rising domestic inflation, which printed a 17-year high of 19.64per cent in July, 2022.
“This development made securities market to be so unsettled, as it put equity market in a prolonged repricing mode, which saw some investors harvesting early profit and some other staying away from the market completely, a terrible situation that forced liquidity to dry up so quickly.
“This was the reason for poor performance in August, in spite of impressive performance by some listed companies. Market might witness a moderate repeat performance of what we saw in August, in the month of September 2022, except inflation number moderates in August, 2022.
“Given that prices are low generally, some traditional investors might begin to stage a comeback to the market on a more cautionary basis, to take advantage of short-term price movement. All the same, I see a bullish long-term equity market.”
According to analyst at PAC Holdings, Mr. Wole Adeyeye, “Some investors migrated from stock market to fixed-income market in a move to take advantage of high yields, triggered by the recent hike in policy rate. Also, foreign investors stayed away Nigerian stock market due to the upcoming general elections, weak local currency and insecurity in the country.”
He noted that the trend may likely continue in September as yield in the fixed-income market is expected to remain attractive.
According to him, “This trend may likely continue in September because rates in fixed-income market is expected to remain relatively high. In addition, foreign investors may not patronise the Nigerian equities market at the moment due to the uncertainty surrounding the economy.
“Nevertheless, our medium-long term outlook for Nigerian equities market remains positive. This provides an opportunity for investors that want to take advantage of cheap stocks in the market at the moment.”