Stocks seen defying Cardoso optimism

Nigeria’s equities market closed lower by 0.31percent on Thursday, resisting the confidence in a better economy as recently expressed by Olayemi Cardoso, new governor of Central Bank of Nigeria (CBN).

While equity traders reconvened on the Nigerian Bourse after Wednesday’s public holiday, market watchers expected equities to pick up from previous bearish close but stocks like Vitafoam which was down by 9.92percent, FTN Cocoa (-9.98percent), Oando (-9.84 percent) and United Capital (-7.20 percent) were majorly on offer, helping to fuel the southward close.

Cardoso and his team of deputy governors were confirmed on Tuesday by the Senate. Stock investors who still anticipate the next phase of driver for the stock market remained cautious over the nation’s macro-economic outlook especially happenings at the foreign exchange (FX) market which directly affects foreign investments in stocks.

This is even after the apex bank governor expressed optimism over the economy and measure to stabilise volatile FX market.

The new CBN governor had promised to pull back from aggressive development finance, ensure culture of transparency, compliance and collaboration and to embark on zero tolerance for breach of CBN Act.

He also set his immediate priority to include aggressive offset of huge FX obligations as part of measures to attack the current naira downturn which has become a huge burden for the economy.

“We will also look at the need to refocus CBN back to its core functions. What needs to be in place to reverse to evidence based monetary policies. This continuation of unorthodox monetary policies and foreign currency management,” he said.

Read also: Cardoso proposes CBN ‘reset’ as naira plunges to 1,000/$

“The CBN has decided to postpone the Monetary Policy Committee (MPC) meeting initially scheduled for Monday and Tuesday, September 25 and 26, 2023, to a later date. Despite these appointments, it is expected that the apex bank will continue to maintain its hawkish stance.

“Taking a more accommodative monetary policy stance prematurely could have adverse effects on the carry trade involving Naira fixed income assets and potentially lead to further depreciation of the Naira,” according to analysts at Vetiva research who had expected the market to pick up on Thursday.

The Nigerian Exchange Limited (NGX) All Share Index (ASI) stood lower at 66,448.63 points at the close of equities trading session on Thursday as against preceding day’s high of 66,652.17 points. Listed stocks value also decreased by N112billion from preceding day’s N36.479trillion to N36.367trillion.

Nigeria’s inflation remains stubbornly elevated to 25.8percent year-on-year (YoY) in August, sustaining its 18-year high. The uptick in prices reflects among others the effect of the petrol subsidy removal.

“In the absence of positive catalysts, we anticipate the bearish trend to persist in the equities market in the coming session,” Lagos-based Futureview research analysts said.

The Nigeria’s currency weakened further against the dollar as the foreign exchange (FX) market resumed trading on Thursday after the public holidays.

Data from AbokiFX, an online platform that tracks the exchange rate on the parallel market showed that a dollar trades at N1,008, weaker that N1,000/$1 it traded on Tuesday at the parallel market. Black market FX dealers bought from willing sellers at N1,000 and sold to willing buyers at N1,008.

Financial Derivatives Company (FDC) analysts at the Lagos Business School (LBS) Executive Breakfast Session who noted 3.44percent stock market gain in August said depressed interest rates is making dividend yields relatively attractive.

While also noting that investors will remain tentative till fourth-quarter (Q4) 2023, FDC analysts added that depreciated Naira value at the forex market is making investors buy stocks with trapped Naira.

“Earnings performance showing extraordinary income is attracting opportunistic investors. The stock market bubble is likely to deflate by 5-10percent as earnings reflect sluggish second-quarter (Q2) sales,” they noted.