Investors lose N283b in August amid uncertainty, low purchasing power
… Analyst predicts gloomy outlook as uptick in fixed market persists
Despite improved earnings and dividend announcements from listed companies, uncertainty in the global economy, coupled with prevailing macroeconomic challenges in the country, especially insecurity and low purchasing power, the 2023 election fear has continued to take a toll on the equities sector of the Nigerian Exchange Limited (NGX) as investors lost N283 billion or 1.07 per cent of the market value in the month of August.
Specifically, the overall market capitalisation of listed companies closed on August 31, 2022 at N26.880 trillion from N27.163 trillion when it opened for trading in August 2022. Similarly, the NGX All-Share Index depreciated by 1.07 per cent to close at 49,836.51 basis points on August 31, 2022 from 50,370.25 basis points it opened for the month trading.
Although the price of many blue-chip firms have fallen below fair value and are currently trading at a very low price compared to their fundamentals, investors are showing apathy towards the stocks.
The equities market in August witnessed a hike in the inflation rate (19.64 per cent as of July 2022), even as the Central Bank of Nigeria (CBN) increased its Monetary Policy Rate (MPR) to 14 per cent and alongside scarcity of foreign exchange that has led to apathy from foreign investors.
These indicators have impacted negatively on the NGX indices closing negative in the month under review. The market, however, maintained a positive performance in its Year-till-Date (YTD) performance, as investors gained N4.58 trillion.
A review of sectoral indices during the month indicated that the NGX Industrial Index suffered the highest decline in August, dropping by 13.8 per cent to 1,777.14 basis points from 2,062.30 basis points it opened for trading. Oil & Gas Index index depreciated by 4.3 per cent to 532.15 basis points from 556.28 basis points it opened for trading in August.
On the other hand, NGX banking index added 2.4 per cent to close at 387.41 basis points from 378.21 basis points, while NGX Insurance Index rose by 7.9 per cent to close at 180.23basis points in August from 167.04 basis points it closed for trading in July.
Reacting on the development, an analyst at PAC Holdings, Wole Adeyeye, said some investors migrated from stock market to fixed-income market in a move to take advantage of high yields, which was triggered by the recent hike in 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 noted that the trend might 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 the fixed-income market are 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 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.”
Vice President, Highcap Securities Limited, David Adonri said the stock market commenced decline in performance when the Monetary Policy Committee (MPC) of CBN increased interest rate to 14 per cent.
He pointed out 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, adding that the fundamentals of foreign and domestic macro-economy in three months have impacted negatively on the stock market.
On market outlook this month, he said the situation may be the same this month with the current happening in the global and domestic economy.
“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.