Stock Investments Drop By N1.02trn As Buyers Shift To Fixed Income

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Investments on the Nigerian stock market declined by N1.022 trillion in the first five months of the year.

Capital market analysts attributed the decline or volatility seen in the market during the period under review to rising yields in the Fixed Income (FI) market.

Yields on fixed income instruments which were depressed last year have been on an upward trajectory in 2021 amidst strong local demand for higher yields and the need to attract foreign interest in Nigerian securities amid  dollar shortage.

The overall market performance measure, All-Share Index (ASI), which tracks the general market movement of all listed equities on the Exchange, declined by 1,832.84 points or 4.55 per cent to close at 38,437.88 points on May 31, 2021 as against 40,270.72 points on January 4, 2021.The market capitalisation declined by N1.022 trillion to close the period under review at N20.045 trillion from N21.057 trillion at which it opened for trading activities on January 4, 2021.

Meanwhile, in the first quarter of 2021, Nigeria printed a year-on-year (y-o-y) real output growth rate of 0.51 per cent to N16.83 trillion ($112.24 billion) as it further recovered from last year’s recession, albeit slowly. So far, the country has seen federal government significantly ease lockdown measures as households and businesses have been allowed to resume economic activities, but not fully.

Although, the country’s recovery rate from recession appeared rather slow, the several billions of naira in economic stimulus packages provided by the monetary and fiscal authorities to help households and businesses cope with the effects of COVID-19 supported the fragile economic recovery.

Also, the Monetary Policy Committee (MPC) on May 25, 2021, decided to hold all key policy parameters constant. The Monetary Policy Rate (MPR) was unchanged at 11.50 per cent and the asymmetric band was retained at +100 bps and – 700 bps around MPR. Cash Reserve Ratio was retained at 27.50 per cent and the Liquidity Ratio left unchanged at 30 per cent.Speaking on market performance for the first five months of the year, the founder of Tradelines DotBiz Investment Limited, Mr Tunde Jeariogbe, said equities performances on the floor of the Nigerian Stock Exchange were mixed, with January and April closing in the positive territory, while February, March and the just concluded month of May dragged performances through the bearish region.

He noted that, “in all, the All-Share Index recorded year-to-date loss of 4.55 per cent, while the market capitalisation of the listed equities sheds N1.022 trillion.

“Fundamental factors that dictated market trend through the five months observed so far in 2021 spanned from the second stage of COVID-19 that opened the market in January, the release of interim full year numbers that prepared investor for the final audited numbers, the first quarter numbers equally played its usual impact, as traders optimized the numbers to position against expected half year earnings come this June/July,” he pointed out.

He stated that, “we cannot rule out reactions to MPC meetings held so far in the year. Although the NBS reported a marginal adjustment in the inflation numbers for the month of April, and an 0.51 YoY growth in the nations GDP for the first quarter of the year, the impact was more negative on equities performances. It must also be mentioned that, the improvement in the fixed income market saw less risky funds out of the Equities market.

“We are of the opinion that positioning for half year numbers, especially in Equities with half year dividend policy should be considered at the moment. Investors should take cautious steps in guiding against panic selling, while smart traders are expected to take advantage of the dropping price.”

Responding, an analyst at PAC Capital, Wole Adeyeye, attributed the decline to high yield on fixed income market, and fear of naira devaluation to led to foreign investors’ exit.

According to him, most investors migrated to fixed income market to take the advantage of relatively high yields and this explains why NSE ASI declined by 4.55 per cent YtD, despite the impressive Q1, 2021 results from most listed companies.

Also, the CEO of Greenville Capital Limited, Mr Azeez Bello stated that, “the equities market performance has mutedly been bearish with shy buying interest from investors for the five months ended May, 2021.

“For the sectoral indices performance as at May 31, 2021, the banking sector, consumer goods sector and industrial goods sector declined by 8.6 per cent, one per cent and 8.9 per cent respectively. However, investors sentiment for Insurance and oil and gas sector was favourable with positive return of 6.5 per cent and 36 per cent respectively.

Bello, however, said:  “as the end of the first half of 2021 beckons, we should expect a not too far-off gradual improvement in bargain hunting sentiments for fundamentally sound stocks that have become quite undervalued. This could facilitate a return into positive territory for the equities market.”

– Leadership

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