Nigerian stocks fall 1.63% in September, the first since 2019

The Nigerian All Share Index fell 1.63% to close trading at 49,024.16 points on September 30, 2022, the first time since 2019.

The equity market has also maintained a bearish profile for four consecutive months since June this year.

Preparations for the 2023 elections have kept foreign investors at bay and sales by domestic investors have intensified.

In addition, the decision of the Central Bank of Nigeria (CBN) to raise the interest rate to 15.5% has also further reduced investors’ appetite for equities to embrace money market instruments.

The ASI reached as high as 54.085.30 on May 27, 2022, but has since declined by 5,061 basis points or 9.55% over the past four months.

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Statistics obtained by theNairametry showed that activity on the Nigerian Stock Exchange, which opened the month at 26,880 billion naira in market capitalization and 49,836.51 in the index at the start of trading on September 1, 2022, closed on September 30, 2022 at 26,451 billion naira and 49,024.16 index points, thus recorded a monthly loss of about 429 billion naira or 1.63%.

Further analysis showed that the NGX Insurance index was the hardest hit in terms of percentage decline in September, falling 6.45% to 168.60 points from 180.23 points at its open during the month. .

The Oil & Gas index followed with a drop of 4.48% to 508.26 points from 532.15 points at its opening in September.

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The pre-election years are usually characterized by negative sentiments, which also drive foreign investors out.

The preparation for the 2023 general elections has started to have a negative impact on the market. Frightened foreign and domestic investors exit the market, triggering a liquidity crunch.

Market experts believe thatomestic Investor sentiment is generally weak as they seek to reduce market exposure ahead of the election. The intensity of impact is generally a function of the degree of political tension and uncertainty generated by political activities.

The Central Bank in its last MPC meeting had raised the interest rate from 11.5% to 14% in the last two meetings, but with the inflation rate still above 20%, the CBN raised the interest rate even further. rate to 15.5% in order to combat the rising cost of goods and services.

According to market traders, when the interest rate is low, speculators shift their funds from money market instruments to the stock market for a higher return, just as they shift from stocks to other asset classes, in particular money market instruments when the interest rate is high.

What investment analysts have said

  • Analysts at CardinalStone Partners Limited noted that the run-up to the 2023 election will keep foreign investors at bay and spark more financial account concerns.
  • Analysts, while commenting on the state of the nation in their 2022 mid-year outlook on the theme: “Same challenges, new shocks”, argued that pre-election worries and fears of a negative impact on the Inflation will likely limit the extent of currency adjustment made in the official market in the current year.
  • According to them, similar to the trend seen in emerging and frontier markets, Nigeria was also unattractive to foreign capital providers in the first half of 22.
  • They attributed this sentiment to geopolitical uncertainties and the hawkish interpretation of global central banks.
  • In addition to these global factors, they pointed to a lack of market-reflecting exchange rates, illiquidity and a backlog of uncleared currency demands dampening investor sentiment.
  • Mr. David Adonri, Executive Vice President, Hicap Securities Limited said: “From the penultimate year of the election, the socio-political atmosphere is charged. Politicians are using violent rhetoric and divisive tactics, which deepen the country’s socio-political fault lines, to establish competitive advantage. During this period, the economy is overloaded with money from excessive election spending, which drives up inflation.
  • The historical track record indicates that, on average, stocks and bonds show positive or negative performance during the penultimate year and immediately after the election. While the drama of the general election may get your imagination racing, what you need to pay attention to is how the unfolding scenario will affect the economy, the capital market, and your portfolio.
  • It can be useful to stick to a long-term strategy, which is longer than any election cycle, because capital market returns are made over a full economic cycle, which can even be longer than any election cycle. a presidential term. For investors with a low tolerance for risk, the safety of bonds can ease their apprehensions.”
  • Adonri said when interest rates rise, investors tend to migrate to fixed income securities.
  • “Rising is capable of shifting financial assets from equities to fixed income securities; expect investors to sell their stocks in the short term. Stocks and fixed income securities work on yield, with the increase in the interest rate, the yield of fixed income securities will be higher and investors will move there until the stock price falls to be competitive in the debt market. If the macro economy improves and inflation starts to come down, then that will favor the equity market and we will start to see stabilization.”
  • Mr. Victor Chiazor, Head of Research and Investments at FSL Securities Limited, speaking to Nairametrics, said that with rising interest rates, all stocks are expected to be definitely hit hard. affected.
  • “Investors just need to be patient, some banks like GTB and Zenith will definitely bounce back, but it will be when the market recovers, when inflation subsides and CBN’s hawkish stances reverse, then we will start to see the inversion of fixed income securities.
  • Investors don’t need to offload their stocks if they have patience and capital. Once the economy recovers, the market will be revived, the best idea is to put the idle fund in the stock market and be patient for an exceptional return.