BY FESTUS OKOROMADU
The value of equities listed on the Nigerian Exchange Limited appreciated remarkably in the month of August as the market capitalisation which is the sum total value of equities rose by N1.41 trillion.
The market also recorded a 15-year high as the All-Share Index rose by 0.51 percent to 66,490.34 basis points on Monday, August 28 from 66,151.38 bps the previous trading day, surpassing the highest value of 66,371.20 achieved on March 5, 2008.
Analysis of the market shows that, while it opened the trading month of August at N35.011 trillion, riding on the back of strong positive sentiments, it closed the month at N36.422 trillion, thereby creating an additional N1.41 trillion gain for investors.
On the other hand, the All-Share Index, which is the broad index that measures the performance of Nigerian stocks, opened the trading month at 64,337.52 index points at the beginning of trading on August 3, 2023, and closed at 66,548.99 points at the end the month on August 31, gaining 2,211.47 basis points or 3.44%.
The bullish trend can be attributed to investors’ jostling for low, medium, and high capitalised stocks across some major sectors amid favourable policies introduced by President Bola Tinubu’s new administration such as the removal of fuel subsidies, unification of exchange rate, investors strategically positioning themselves and taking advantage of the recent record earnings posted by quoted firms and the recent formation of the country’s economic cabinet and executives. Interestingly, the market traded in mixed sentiments during the month under review.
Reacting to the performance of the market, market analysts maintained that most investors, particularly domestic investors, are optimistic that the economy will take shape soon, hence the reason the stock market is defying current macroeconomic uncertainties.
Cordros Research in their market review and outlook for financial markets titled; veering from the watershed point, stated that the equities market’s resilience reflects heightened investor optimism for domestic growth with the new administration’s promulgation of long-needed policies.
According to the report, the implementation of policy reforms, accommodative monetary policy and resilient corporate earnings have so far supported buying activities in August.
The report further said that “Even though foreign investors are expected to stay on the sidelines as long as FX illiquidity issues persist, its baseline expectation is that the market will deliver a positive return of 25.8% in the full year of 2023.”
Nigeria’s foreign exchange reserves recorded its first accretion after sixteen consecutive weeks of decline.
Data obtained from the Central Bank of Nigeria indicated that the gross FX reserves increased by $224.39 million week-on-week (w/w) to close at $33.95 billion on 31 August, 2023.
Similarly, the Naira appreciated by 5.1 percent to N740.38/USD at the I&E window, with total turnover at the window (as of 31 August 2023) decreasing by 12.1 percent week to date to $367.47 million, as trades were consummated within the N701.00 – N800.00/USD band.
In the Forwards market, the Naira rates recorded for the 1-month (-0.1 percent to N791.85/USD), 3-month (-0.3 percent to NGN812.06/USD, 6-month (-0.6 percent to N842.73/USD), and 1-year (-1.2 percent to N907.97/USD) contracts decreased.
Unfortunately, there were no indications that market will soon rebound as financial analyst at Cordros Securities Limited said the much-hyped Nigerian National Petroleum Company Limited’s crude repayment facility with the African Export-Import bank may have been put on hold.
Although no public explanation has been offered for the delay in release of the AFREXIM facility, market analysts said, “There have been no further positive news flows regarding other measures to stem the slide of the naira.”
Warning of the possibility of continued pressure on the local currency, the Cordros analyst said, “The preceding, in addition to the lingering low crude oil production and foreign investors remaining on the sidelines, are expected to weigh on FX supply in the near term.
“Consequently, we expect FX liquidity constraints to linger in the short term, ensuring the local currency pressures remain intact.”
Meanwhile, from the data obtained from FMDQ at the close of trading on Friday, total inflows of FX into the Investors & Exporters Window (IEW) declined for the second consecutive month, falling by 17.0 percent m/m to $679.60 million, the lowest level since October 2022 ($676.80 million).
The breakdown provided showed that inflows declined across the domestic and foreign sources.
Specifically, local inflows (93.1 percent of total inflows) declined by 16.8 percent m/m to $633.00 million.
Experts say, the fall was primarily due to the decline in inflows from exporters which dropped m/m by 35.9 percent and non-bank corporates which dipped by 37.0 percent m/m.
In the same vein, inflows from foreign sources remained underwhelming, declining further by 19.5 percent m/m to $46.60 million as foreign investors remained cautious about returning in droves despite the FX market liberalisation, as FX backlogs remain uncleared.
“Looking ahead, we expect FX liquidity conditions to remain frail in the near term.”
We also anticipate weak foreign inflows in the short term, as foreign investors will likely adopt a wait-and-see approach in the near term as they await the CBN’s actions in clearing its FX backlogs and the direction of short-term interest rates amid high inflation,” Cordros analyst stated.
In the equities market, the Nigerian Exchange Domestic and Foreign Portfolio Report for July revealed that total transactions on the local bourse rose further by 72.8 percent month-on-month (m/m) to N702.99 billion as against N406.76 billion recorded in June. The figure represents the highest growth posted since at least 2013.
Breakdown of the report shows that domestic investors primarily drove the increase in the review period, with domestic transactions contributing 94.2 percent of market transactions rising by 83.5 percent m/m to N662.45 billion in July from N361.02 billion in June.
Meanwhile, foreign transactions, which account for 5.8 percent of gross transactions for the month of July representing 11.4 percent, declined to N40.54 billion in July compared with N45.74 billion reported in June.
Experts have attributed the decline to the government’s reform which slowed momentum as well as dampening foreign sentiments.
However, experts are optimistic that domestic investors will continue to dominate the domestic equities market over the short-to-medium term, even as higher FX yields may constrain buying activities.