Amid uncertainty, investors earned N2.9tr on equities in January

…Stakeholders task govt on sustaining market upbeat

With close to N2.9 trillion gain recorded in the January equities’ deal due to increased bargain hunting for blue-chip stocks, stock market investors have underscored the need for proper coordination of fiscal and monetary policies in retaining current interest rate as well as ensuring peaceful electioneering ahead of the 2023 polls to sustain the current uptrend in the market.

The experts, who maintained that both factors are critical to sustainable market rebound in 2022, said proper alignment of fiscal and monetary policy that resulted in a stable interest rate was a major factor that triggered the 2020 rally and the 50.3 per cent rise in index achieved in 2020.

Since the beginning of this year, the stock market has witnessed increased bargain hunting for blue-chip stocks. The persistent bull run has buoyed transactions in the stock market as investors’ wealth soared significantly by 8.4 per cent in one month.

Precisely, the market capitalisation, which closed year 2021 (Friday December 31) at N22.296 trillion gained N2.828 trillion or 11.2 per cent to N25.124 trillion as at Monday, January 31, 2022 while the All-share index added 3,908.23 points or 8.4 per cent from 42,716.44 points to 46,624.67 points.

The increased bargain hunting may, however, be attributed to expectations of a positive earnings reporting season and big expectations from banking stocks due to the sector’s upward trend in dividend yield.

Already, stakeholders are wary of uncertainty in the global economy, which may provide a justification for monetary policy tightening, coupled with the effect of pre-election anxiety and political intrigues ahead of the 2023 polls.

They believed that only a peaceful election and downward review of interest rate could restore confidence in the market, sustain the uptrend and spur the expected recovery this year.

This is because elections in the country have set a pattern of disrupting economic activities, with unusual concerns that put sectors into speculative mode over new policies or policy changes by the government

Specifically, the President of Issuers and Investors Alternative Dispute Resolution (IIADRI), Moses Igbrude affirmed that the interest rate must be retained at the current position to enable listed firms enhance profitability and increase investors access to the stock market.

“It is good and rewarding for investors that the market has achieved an average of 8 to 9 per cent rise despite the challenging operating environment.

“But my fear is that we are approaching an electioneering period which is always occasioned by high levels of insecurity and social unrest which may result in capital flight and apathy towards equities investment.

“To sustain this tempo of growth, companies should imbibe good corporate governance while the government implements right economic policies with a low interest rate regime to grow the economy.”

Managing Director, Morgan Capital Securities Limited, Rotimi Olubi categorically stated that electioneering, rate hikes, and capital controls by the monetary authorities are expected to impact negatively on the stock market in 2022.

He stated that corporate earnings of companies in the consumer goods and industrial sector are expected to be impacted by high input costs caused by rise in inflation and increased cost of capital if there is a hike in interest rate this year.

According to Olubi, interest income of financial services institutions such as banks are also expected to rise if interest rates increase as expected

He said any attempts by the Monetary Policy Committee (MPC) to raise interest rate to combat inflation as a result of the U.S decision to raise their interest rate would depress the equities market and cause Foreign Portfolio Investments (FPIs) to remain on the sidelines.

President of NewDimension Shareholders Association, Patrick Ajudua said the rally witnessed in the market currently is driven by investors’ repositioning on dividend paying stocks ahead of the 2021 full year earnings.

According to him, this is in addition to the low yield environment from government bond and treasury bills, which has spurred investors’ patronage to the equities market.

However, he added that the tempo could be sustained if the government would understand that a vibrant capital market is key to sustainable economic growth and maintain a stable interest rate that would further allow more liquidity into the stock market.

“If the government will realise that the capital market is a way to economic sustainability and prosperity and ensure that economic policies are not made to discourage investors, more liquidity would definitely flow into the equities market to sustain the uptrend,” he said.