Investors lose N436.97bn in equities as naira continues free-fall

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  • DMO announces 2-year, 3-year savings bonds for investors

 

The Nigerian equities market slumped on Monday with the benchmark index of the Nigerian Exchange Limited, the NGX All-Share Index contracted by 0.73 percent to 103,659.81 points.

Some market analysts attributed the dominance of the bears in the market at the commencement of the week, to an interview granted by the Governor of the Central Bank of Nigeria, Yemi Cardoso, where he explained the foreign exchange backlog owed various operators in the economy.

According to Cardoso the outstanding foreign exchange backlog is $2.2 billion, adding that this will be cleared soon.

He said $2. 3 billion has so far been settled out of the total verified forex backlog.

According to Cardoso, there is a huge difference between $2.2 billion outstanding and $7billion as claimed in some quarters.

Interpreting the downward performance of the market on Monday, Financial experts at Coronation Securities Limited said the market was reacting to the CBN Governor’s interview.

Meanwhile, the NGX market capitalization of listed equities plunged by N436.97 billion to settle at N56.72 trillion, while the year-to-date return of the index dropped to 38.63 percent. While 29 stocks recorded losses as 26 stocks posted gains.

Tickers such as ABBEYBDS, LIVESTOCK, FIDELITYBK, JAIZBANK and MTNN depreciated by 9.70 percent, 9.66 percent, 9.38 percent, 7.93 percent and 5.52 percent, respectively. Nonetheless, buy pressure was observed in CADBURY, DAARCOMM, MAYBAKER, MEYER and CORNERST, as their share prices surged by 10.00 percent each.

Meanwhile, trading activity on the NGX was subdued, with the total traded volume declining by 10.81 percent to 841.55 million units, and the total value of stocks dropping by 17.67 percent to N19.33 billion.

However, the total deals for the day bucked the trend as it increased by 18.78 percent, totaling 13,674 trades. Performance across the sub-sectors tracked closed in the mix.

NGX Banking and NGX Consumer Goods indexes declined by 2.30 percent and 0.03 percent, NGX Insurance and Industrial Indexes increased by 2.67 percent and 0.01 percent, while the Oil/Gas sector stayed flat.

At the conclusion of the trading session, FBNH emerged as the most traded security in terms of volume and value with 332.30 million units worth N8.95 billion, changing hands in 767 deals.

The naira has been on a much-prolonged retreat, dating back to the pandemic days, against the dollar as a heap of unmet obligations to investors and exporters continues to strain the currency, which has weakened to dross.

Naira finished 2023 as the world’s worst-performing currency, weighed down by illiquidity and commonplace speculative practices among market operators and street traders.

Currency users have to throng the parallel market, where the exchange rate is higher but the dollar is in greater supply, to have their needs met.

President Bola Tinubu set out shortly after his inauguration last year to liberalise the foreign exchange system, which has been bogged down by an unorthodox regime that pegged the exchange rate rather than allowing the naira to trade freely and find price discovery.

The CBN collapsed the multiple naira exchange rates, adopted under the immediate past CBN governor, Godwin Emefiele, into a single window as part of a slew of currency reforms that followed. It went further to initiate its first devaluation round under the current administration around mid-June.

Those market-friendly moves were aimed at courting international investors but they are hurting Nigerians at home, considering that they are adding fuel to an already elevated inflation by making imported goods and raw materials much more expensive.

In the week that just went by, naira’s official rate nosedived by over 36 percent, dropping to a lower level than the street rate, after the CBN overhauled its approach to setting the rate in the official market and came hard on traders involved in misleading the public with distorted prices.

Between the point that President Tinubu took office and now, the naira has depreciated by approximately 68 percent, 50 percent in 2023 alone.

But banks also have been fingered in the speculative activities that are pressuring the naira.

Cardoso gave a tall order to banks at the end of January, ordering them to increase dollar supply to the market by ensuring their foreign exchange net open position does not exceed 20 percent of shareholders’ funds unimpaired by losses.

Put differently, the gross amount of loans lenders can grant in foreign currency must not exceed one-fifth of their shareholders’ funds, which could force banks to make the remaining cash available to the market, a push that could boost liquidity in the system.

DMO announces 2-year, 3-year savings bonds for investors

In another development, the Federal Government has announced the launch of new 2-year and 3-year Savings Bonds, offering attractive interest rates to investors seeking secure investment opportunities.

The Debt Management Office, a government agency established to centrally coordinate the management of Nigeria’s debt, disclosed this in a statement on Monday.

DMO said the bonds would be available for subscription from February 5-9, 2024, offering yields of 12.751% for the 2-year bond and 13.751% for the 3-year bond, paid quarterly. This represents a competitive option in the current market environment.

It also stated that 1,000 per unit requires a minimum subscription of 5,000 and a maximum subscription of N50,000 in subsequent multiples of 1,000, noting that interest payments are made quarterly and the principal is repaid in full at maturity.

The agency added that the investment qualifies under the Trustee Investment Act as securities in which trustees can invest and it is recognised as government securities, meeting the criteria outlined in the Company Income Tax Act (“CITA”) and Personal Income Tax Act (“PITA”) for Tax Exemption for Pension Funds, among other investors.

It is also listed on the Nigerian Exchange Limited, adding that it qualifies as a liquid asset for liquidity ratio calculation for banks.

“Backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of Nigeria,” the statement reads,

The DMO added that interested investors should contact the stocking firms appointed as distribution agencies by the debt management.