After a rally that added N6.52 trillion to their total market value in four months, Nigerian stocks finished March in the red amid concerns over the fallout of the general election and the possible ripple effect of the turmoil in the global banking system.
The stock market had been on an upward trajectory since October, defying the Central Bank of Nigeria’s aggressive interest-rate hiking cycle and pre-election tensions to end 2022 with a return of almost 20 percent.
It extended its winning streak in the first two months of this year despite election risks as the market value hit the N30 trillion mark for the first time ever as the country awaited the outcome of the presidential election, while the main stock index gained 8.89 percent as of the end of February. But the market declined on March 1 after five consecutive days of gains and has been wobbling since then.
The All Share Index of the Nigerian Exchange Limited (NGX) retreated 2.82 percent to 54,232.34 basis points (bps) at the end of last month, losing more than 60 percent of the gains it posted in February.
The decline in the benchmark equity index wiped N860 billion off the value of stocks on the NGX as the market capitalisation ended the month at N29.54 trillion.
The stock market finished the first quarter of the year up 5.82 percent, compared to a return of 9.95 percent in the same period of 2022.
Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest, said the general elections contributed to the downside in the stock market last month.
“There were agitations post election which sent a wave of uncertainties to the investors. We saw a slight rebound towards the end of the month due to positive scorecards and corporate actions,” he said on Saturday in a response to questions from BusinessDay.
Analysts at Financial Derivatives Company Limited (FDC) said in a report on Thursday that the stock market recorded a cumulative loss of 3.59 percent in the second half of March.
They said the negative stock market performance within the review period (Mar. 16-28) was due to the rise in the monetary policy rate from 17.5 percent to 18 percent and the lingering political uncertainties.
The central bank raised its benchmark interest rate for the sixth consecutive time in March, bringing the cumulative increase to 750bps since May last year.
“The elevated rates in the fixed income market will cause the stock market to suffer losses in the coming weeks as investors become more willing to sell their high-liquidity stocks,” FDC analysts said.
Global banking woes weigh on market
The recent turmoil in the global banking sector caused by bank failures in the United States and Europe sent ripples through financial markets.
Ebo said the global banking turmoil impacted the Nigerian equities market but not in a significant way.
The US banking sector has been in turmoil after regulators on March 10 closed Silicon Valley Bank (SVB) in the largest bank failure in the country since the 2008 financial crisis.
The collapse of SVB and Signature Bank, another US midsized lender, prompted a rout in banking stocks and led to UBS Group AG’s takeover of 167-year-old Credit Suisse Group AG to avert a wider crisis, according to Reuters.
“Financial markets across sub-Saharan Africa have struggled and have underperformed their emerging market peers since the global banking sector turmoil erupted,” Capital Economics said in a Mar. 23 note.
The London-based economic research firm said that amid broad risk-off sentiment, African sovereign dollar bonds had sold off nearly across the board and equities were down in much of the region too.
Foreign investors eschew equities as FX crisis lingers
Data from the NGX show that foreign inflow into the Nigerian stock market fell to a record low of N3.68 billion in February from N9.84 billion in the previous month amid a lingering scarcity of foreign exchange that is crimping investors’ ability to repatriate their funds.
Foreign investors offloaded stocks worth N15.94 billion in February, compared to N15.06 billion in the previous month.
Foreign transactions decreased by 21.20 percent to N19.62 billion in February while domestic deals dipped by 0.53 percent to N169.29 billion.
“Notably, while foreign investors remain net sellers of Nigerian equities, inflows declined sharply by 62.2 percent month-on-month to N3.68 billion – the lowest level since at least 2013 amid lingering FX liquidity constraints, election uncertainties, and high global interest rates,” analysts at Cordros Capital Limited said on Friday in a note.
They expect domestic investors to continue to dominate the domestic equities market over the short-to-medium term, even as higher fixed income yields may constrain buying activities.
“Also, foreign portfolio investors who have exhibited a lacklustre interest in domestic equities are likely to remain on the sidelines due to elevated global uncertainties, sustained FX liquidity challenges, and tightening global financing conditions,” they said.
BusinessDay reported in February that for the first time in five years, foreign investors bought more Nigerian stocks than they sold in 2022, with analysts saying foreigners were forced to reinvest their dividends and sales proceeds into securities because they could not get dollars to repatriate their funds.
Nigeria saw a net foreign inflow of N12.29 billion into its stock market last year, compared to a net outflow of N24.74 billion in 2021, according to NGX data.
It marked the first net inflow of foreign funds into the market since 2017, when a record N772.25 billion entered and N435.31 billion exited.
Last year, the inflow fell to N195.76 billion, the lowest in at least 13 years, from N204.88 billion in 2021, while the outflow dropped to N183.47 billion from N229.62 billion.