Equities Investments Drop By N283bn Amidst Rising Fixed Income Yields

Keeping to the trend in the prior month, the domestic equities market closed the month of August in the negative region as investors’ investment declined by N283 billion.

The equities market depreciated by 1.07 per cent to maintain sentiment trending for the third consecutive month, amidst lingering macroeconomic headwinds and rising income yields.

The overall market capitalisation of listed companies closed on August 31, 2022 at N26.880 trillion from N27.163 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.

The equities market, however, maintained positive performance in its Year-till-Date performance, as investors gained N4.58 trillion. The equities market in August has witnessed hike in the inflation rate (19.64 per cent as of July 2022), Central Bank of Nigeria (CBN) increase in its Monetary Policy Rate (MPR) to 14 per cent and a scarcity of foreign exchange that has led to the outflow of foreign investors.

These indicators have affected NGX indices closing negative in the month under review. Reviewing the sectorial indices, 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 a flipside, the 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.

Speaking on the equities market performance, analyst at PAC Holdings, Mr. Wole Adeyeye explained that, “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 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 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.”

The vice president, Highcap Securities Limited, Mr, David Adonri said the stock market commenced decline performance when the Monetary Policy Committee (MPC) of CBN increase interest rate to 14 per cent.

He noted that other macroeconomy indicators such as inflation rate, and scarcity of foreign exchange have also diminished demand for stocks as investors moved to fixed income markets, saying that the fundamentals of foreign and domestic macroeconomy 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.”