The 2023 election fear has continued to have an impact on the equities sector of the Nigerian Exchange Limited (NGX), as investors lost N283 billion or 1.07 percent of the market value in the month of August.
This is despite improved earnings and dividend announcements from listed companies, uncertainty in the global economy, as well as ongoing macroeconomic challenges in the country, particularly insecurity and low purchasing power.
In particular, the total market value of listed businesses closed at N26.880 trillion on August 31, 2022, up from N27.163 trillion when trading first began in August 2022. The NGX All-Share Index also declined, falling 1.07 percent from its opening price of 50,370.25 basis points to close at 49,836.51 basis points on August 31, 2022.
Investors aren’t interested in the stocks despite the fact that the price of many blue-chip companies has dropped below fair value and that they are currently trading at a very cheap price in comparison to their fundamentals.
Inflation surged in the equity market in August (19.64% as of July 2022), even as the Central Bank of Nigeria (CBN) raised its Monetary Policy Rate (MPR) to 14% and with a lack of foreign currency that has discouraged foreign investors.
These indicators had a detrimental effect on the NGX indices, which closed lower than expected in the month under review. However, the market continued to perform well in its Year-to-Date (YTD) performance, with investors making gains of N4.58 trillion.
According to a survey of industry indices for the month, the NGX Industrial Index, which opened for trade at 2,062.30 basis points and fell by 13.8% to 1,777.14 basis points in August, had the worst decrease. Oil & Gas Index index dropped from 556.28 basis points, where it first began trading in August, to 532.15 basis points, a decrease of 4.3%.
While the NGX Insurance Index increased by 7.9% to close at 180.23 basis points in August from 167.04 basis points it closed for trade in July, the NGX Banking Index increased by 2.4% to close at 387.41 basis points from 378.21 basis points.
In response to the situation, Wole Adeyeye, an analyst at PAC Holdings, claimed that some investors switched from the stock market to the fixed-income market in order to benefit from high returns, which was brought on by the most recent increase in the policy rate.
“Also, foreign investors avoided the Nigerian stock market due to the upcoming general elections, weak local currency and insecurity in the country.”
He pointed out that as the yield on the fixed-income market is anticipated to stay favorable, the trend may very well continue in September.
He asserts that given the anticipated continued high rates in the fixed-income market, this trend may very well continue in September. Additionally, because of the current economic uncertainty, foreign investors might not currently support the Nigerian stock market.
“Nevertheless, our medium-long term outlook for the 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.”
David Adonri, vice president of Highcap Securities Limited, claimed that the stock market started to perform worse after the CBN’s Monetary Policy Committee (MPC) raised the interest rate to 14%.
He emphasized that other macroeconomic indicators, such as the rate of inflation and the lack of available foreign exchange, have also reduced demand for stocks as investors have shifted to fixed income markets, and he added that the fundamentals of the domestic and international macroeconomies have had a negative impact on the stock market over the past three months.
Regarding the market prognosis for this month, he stated that given the existing state of the national and global economies, the situation might remain unchanged.
“The Russia/Ukraine war is one of them and the current event in China regarding power blackout is causing global anxiety among investors”, he added.
