Economy At Half Year: Investors Lose N1.2tr, Naira Depreciates By 8 Per Cent

Nigeria’s economic and financial health status deteriorated sharply in the first half of this year as rising hyperinflation compounded currency depreciation, stoking a selloff that saw investors in quoted equities losing N1.24 trillion within the six-month period.

Benchmark indices for Nigerian investment assets, currency and general consumer price trend closed the first half yesterday deeply in the red, with the general price of goods and services rising by about 14 per cent.

The naira depreciated by an average of N34.08 or about 8.06 per cent against the dollar while the country’s foreign exchange (forex) reserves declined by about $3 billion within the six-month period.

Most analysts attributed the overall decline in economic and financial position to the tough global and national macroeconomic conditions, with national reforms tracking below expectations. They said recent improvements may lead to steady recovery in the second half.

At the Nigerian stock market, the benchmark All Share Index (ASI) of the Nigerian Exchange (NGX) Limited closed the first half yesterday with average negative return of -5.869 per cent, equivalent to net capital depreciation of N1.24 trillion. The ASI is widely regarded as Nigeria’s sovereign equity index, a barometer for measuring pricing trend and investors’ mood at the stock market.

The ASI closed yesterday down by 2,363.44 points to 37, 907.28 points, as against the year’s opening index of 40,270.72 points.

Expectedly, aggregate market value of all quoted equities at the NGX declined from 2021’s opening value of N21.057 trillion to close the six-month period at N19.760 trillion, representing a drop of N1.297 trillion or 6.16 per cent. The difference between the ASI and market value was due mainly to unadjusted impact of delisting of some quoted companies during the period.

As at December 31, 2020, inflation stood at 15.75 per cent, but spiked to 17.93 per cent by May 31, 2021.

In the foreign exchange market, the naira was exchanging at N380 to dollar at the official market and N465 to dollar at the parallel market. By June 31, 2021, the local currency depreciated to N410.16 to dollar at the official market, and N503 to dollar at the parallel market.

The foreign exchange reserves stood at $36.37 billion on December 31, 2020. By June 28, 2021, the reserves stood at $33.4 billion.

Further analysis of pricing trend at the stock market showed less safe havens for investors across the sectors of the economy. The highly influential NGX Industrial Goods Index and NGX Banking Index recorded six-month returns of -8.09 per cent and -6.92 per cent respectively. Nigeria’s largest capitalized quoted company is listed under the industrial goods sector while banking stocks are the most active and sensitive stocks. The NGX  Lotus Islamic Index- which tracks the emerging alternative Islamic finance market, depreciated by 5.53 per cent while the NGX Consumer Goods Index, which tracks major consumer goods manufacturers dropped by 0.31 per cent.

Foreign portfolio investors continued to show apathy to Nigerian securities, continuing the running deficit of more outflows than inflows. Total foreign portfolio outflows of N107.22 billion, for the five-month period between January and May 2021, the latest available figures, outpaced foreign portfolio inflows of N91.32 billion during the period.

Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, said the apex bank adopted gradual liberalization, an euphemism for depreciation, due to the unprecedented nature of the shock on the country’s currency.

According to him, the apex bank has continued to favour a gradual liberalisation of the foreign exchange market in order to moderate exchange rate volatility and mitigate the impact, which rapid changes in the exchange rate could have on key macro-economic variables.

“At the same time, measures are being taken by the authorities to improve our non-oil exports and other sources of foreign exchange. These measures have helped to prevent a significant decline in our reserves,” Emefiele said.

In emailed note to investors, Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said the fall in reserves to current position followed continued rise in dollar demand by manufacturers and forex users at the retail end of the market.

Other analysts attributed the reserves decline to drop in diaspora remittances due to patronage of illegal remittance channels by Nigerians in diaspora, a trend fueled by wide disparity between the CBNB-managed official rates and parallel market rates.

Worried by the recourse to the open-market, parallel market, the CBN introduced the naira-for=dollar policy to provide incentives to Nigerians in diaspora to send more greenback home through the official channels.

The relapse at the stock market in the first half raised anxieties over the sustainability of the recovery witnessed in 2020. Amid the COVID-19 pandemic and economic recession, Nigerian equities had played the full contrarian to close 2020 with net capital gain of N6.48 trillion. The NGX ASI showed average full-year return of 50.03 per cent in 2020, representing net capital gain of N6.483 trillion. The recent highest return was 42.3 per cent recorded in 2017. The ASI closed 2020 at 40,270.72 points, 50.03 per cent above 26,842.07 points recorded as opening index for the year.

Aggregate market value of all quoted equities at the NGX had risen to N21.057 trillion by the end of 2020 as against N12.958 trillion recorded as opening value for the year, an increase of N8.1 trillion. The additional increase in value of market capitalisation, above the ASI percentage change, was due to additional or supplementary listing of shares during the year.

The recovery since 2020 was particularly spectacular when viewed against the background of negative performance in recent years. After posting a world-ranking return of 42.3 per cent in 2017, the market had reversed to negative in 2018 with average full-year return of -17.81 per cent.  In 2019, investors suffered net loss of about N1.71 trillion with negative average return of -14.60 per cent. Prior to 2017, the stock market had been on a losing streak since 2014. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015. Against the general expectation that political transition and new government will quicken a rebound, equities closed 2016 with a net capital loss of N604 billion.

Cautious optimism was the general word yesterday among the analysts.

Chief Executive Officer, Sofunix Investment and Communications, Sola Oni, said the performance of the stock market in the first half year was moderated by foreign investors’ apathy following devaluation of the naira and inflationary pressure as well as insecurity.

“The extent to which the challenges of the first half are addressed will determine transaction mode of the second half. But discerning investors who seek professional advice from their securities dealers will always recoup his investment, regardless of the nature of the operating environment,” Oni said.

Managing Director, Highcap Securities Limited, Mr. David Adonri, said the stock market was on self- correction in first half after the rally in 2020.

“That rally was baseless and provoked by expansionary monetary policies of CBN and NESP. With recovery in the debt market, there has been a sustained correction in equities despite improving macroeconomic conditions.

“This correction will fizzle out in due course but the ambitious debt financing program of FGN can truncate this expectation,” Adonri said.

Market Analyst and Stockbroker, Calyxt Securities Limited, Mr. Tunde Oyediran  said the market might witness further decline, in the absence of any coordinated policies to address the challenges.

“Except for deliberate government policies and actions that will address the lingering security challenges and its attendant problems, the market may experience further drop. But towards the year end we may experience market recovery,” Oyediran said.

– The Nation