• Wednesday, July 17, 2024
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Nigeria’s stocks defy rate hike to gain N15.25trn in 5 months

Nigeria’s stocks defy rate hike to gain N15.25trn in 5 months

Despite consistent hike in Nigeria’s benchmark interest rates making fixed income securities attractive, the equities market maintained upward trajectory, rising by N15.25 trillion in value in the first five months of 2024.

This record positive comes as investors continued to invest in fundamentally sound stocks on the Lagos bourse.

Since the beginning of 2024, the stock market has witnessed an unprecedented rally and buying interest, especially in the industrial goods, oil & gas sector and consumer and sub-sector, which has continued to trigger massive bargain hunting in large company shares.

Specifically, the overall market capitalisation closed May 2024 at N56.172 trillion, gaining N15.25 trillion or 37.28 percent from N40.917 trillion the stock market opened for trading this year.

Consequently, the NGX ASI increased to 99,300.38 basis points, about 24,526.61 or 32.8 per cent Year-to-Date (YtD) performance from 74,773.77 basis points it closed for trading 2023.

David Adnori, Vice President, Highcap Securities Limited said that investors traded based on sentiment, adding that the emergence of Bola Tinubu as Nigeria’s President further energised the stock market, since market participants had confidence in his ability to rejig the economy and implement economy-friendly policies.

Adnori is also optimistic that the stock market will maintain its positive momentum in the second quarter of 2024, against the backdrop of banking sector recapitalisation that is expected to trigger investors buying rights issues from listed banks.

At 32.8 percent growth in major market index, the Nigerian stock market still maintains its position as the most performing Exchange in Africa.

Read also: Nigeria’s rate hike further hurts stocks

Also, the management of the Exchange has enforced compliance, transparency and a market friendly environment that continued to impact heavy participation in stock trading by both local and foreign investors.

Tajudeen Olayinka, investment banker and stockbroker stated that the drive by many investors to hedge against inflationary pressure put their buy interests in equity.

Olayinka stated, “And this is demonstrated by simultaneous rise in interest rates and equity prices. Beyond this analogy, the economy is still grossly awash with Godwin Emefiele’s N30 trillion illegally printed for the use of former President Muhammadu Buhari’s administration”..

“So, there is excess liquidity in the system, chasing fewer profitable investment opportunities in the economy,” he said.

For instance, the NGX Industrial Index has gained 73.08 per cent YtD to 4,694.42 basis points as of May 2024, while NGX Consumer Goods Index appreciated by 39.5 per cent to close at 1,564.19 basis points.

The taking position in Dangote Cement Plc influenced the 73.08 per cent YtD growth in NGX Industrial Index.

The stock price of Dangote Cement has appreciated to N656.70 per share as of May 2024, about 105.28 per cent growth from N319.9per share the stock opened for trading this year.

Among the top index performance was NGX Oil/Gas Index that gained 24.07 per cent YtD performance to 1,294.16 basis points and NGX Insurance Index that gained 14.17 per cent to close May 2024 at 367.23 basis points.

Amid reforms in the banking sector, the NGX Banking Index dropped by 11.13 per cent to close May 2024 at 797.37 basis points as investors trade listed banking stocks with caution.

Capital market analysts stated that the stock market performance in five months of 2024 is against the backdrop of mixed corporate first quarter ended March 2024 earnings by listed companies, the federal government’s reforms in the foreign exchange market, and fuel subsidy removal.

Amid the hike in MPR to 26.25 percent, capital market experts stated that its impact had created sentiment trading among investors who saw the fixed-income market as an alternative investment opportunity to hedge against double-digit inflation.

At the Monetary Policy Committee (MPC) meeting, Governor of Central Bank of Nigeria (CBN), Olayemi Cardoso, stated that the key focus of the Committee remained to achieve price stability by effectively using tools available to the monetary authority to rein in inflation.

Nigeria’s headline inflation rate continued to climb to 33.69per cent in April 2024, its highest since March 1996, up from 33.2percent in the prior month.

This marks the 16th consecutive month of acceleration in inflation, partly because of renewed weakness in the naira coupled with the removal of fuel subsidies.