Recapitalization: Investors offload equities, NGX records third consecutive weekly loss

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The domestic equities market recorded its third consecutive weekly loss as investors contended with the potential implications of the recently announced bank recapitalization plans by the Central Bank of Nigeria.

According to the Governor, Central Bank of Nigeria, Olayemi Cardoso, Nigerian banks have a period of 24 months from April 1, 2024, to March 31, 2026, to raise their respective capital base, the highest being N500 billion.

The recapitalization programme is intended to reposition Nigerian lenders and increase their ability to finance a $1.0 trillion proposed by President Bola Tinubu.

The new minimum capital base for commercial banks with national authorisation is N200 billion, while the new requirement for those with regional authorisation is N50 billion.

Merchant banks would be expected to raise their capital to N50 billion, while the new requirements for non-interest banks with national and regional authorisations are N20 billion and N10 billion, respectively.

Hence significant selling pressure was evident across tier-1 banking stocks, with FBNH (-14.2%), GTCO (-8.6%), ACCESSCORP (-7.8%), and ZENITHBANK (-4.5%) recording declines. Furthermore, profit-taking activities in MTNN (-2.2%), contributed to the overall market downturn.

Reflecting the prevailing market sentiments, the Banking (-6.7%) index recorded the most substantial loss, followed by the Insurance (-0.9%) and Industrial Goods (-0.3%) indices. Conversely, the Consumer Goods (+0.9%) index advanced, while the Oil and Gas index closed flat.

Consequently, the All-Share index declined by 1.1 percent week-on-week, leading to a moderation in the Year-to-Date return to +38.3 percent. Despite the overall market decline, activity levels surged, with the total traded volume and value increasing by 104.0 percent w/w and 11.2 percent w/w, respectively.

Stock market experts at Cordros Capital said they expect to see more of a choppy trading pattern in this new week as cautious trading dominates trading activities.

“In the short term, we expect investors’ sentiments to be influenced by developments in the macroeconomic landscape and corporate actions,” they said.

In the global stock market in the review week, equities were broadly negative as a combination of factors including (1) escalating tensions in the Middle East, (2) rising oil prices, and (3) comments from US Federal Reserve officials indicating reluctance to cut rates until further confirmation of declining inflation, dampened sentiments.

Consequently, US equities (DJIA: -3.0%; S&P 500: -2.0%) were poised to end the week lower as investors scaled back expectations of a rate cut in the upcoming June meeting. European equities (STOXX Europe: -1.4%; FTSE 100: -0.6%) were set for a weekly loss driven by hawkish remarks from some US Fed officials and heightened tensions in the Middle East. In Asia, the Chinese market (SSE: +0.9%) saw gains as a rebound in the manufacturing sector spurred optimism about the nation’s economic recovery.

Conversely, the Japanese market (Nikkei 225: -3.4%) declined due to concerns of a strengthened yen hurting exports, rising Middle East tensions, and negative sentiments on Wall Street. Finally, the Emerging Markets index (MSCI EM: +0.5%) closed higher, driven by gains in China (+0.9%), while the Frontier Markets index (MSCI FM: +0.2%) recorded a marginal gain following bullish sentiments in Romania (+0.6%).