By OKEY ONYENWEAKU
Despite the excruciating hardship in the country, the equities market seems to have lately shown a measure of strength having garnered 23.7% growth year to date.
Though this growth seems to defy practical understanding, many reasons have however been adduced for the positive disposition of the market at this time.
Aside from the market riding on the back of fairly strong corporate results at the end of the year 2021 and that of the first quarter 2022, analysts are wont to believe that the inflationary spiral in the economy may indeed be the dramatic magic of recent bullish market.
Looking at the market critically, there has come to be a seemingly stoic disposition. But the bullish market experience of the moment is coming when the broader Nigerian economy is in dire straits despite recording a 3.1% growth in Q1, 2022
Yet about 40%(80-100m) of Nigerians are wallowing in extreme poverty; food production is expected to decline given to fertilizer shortages due to Russia/Ukranian war; Nigeria has also not fully recovered from the devastating impact of Covid-19; the growing insecurity which has hampered agricultural activities is taking a different toll on Nigeria’s food security; food inflation according to NBS stood at about 17.2%; over N6trillion deficit is tugging at the N17trillion budget for 2022 and the bulk of debt servicing will also come from that money; the value of the naira keeps declining and the Country remains unproductive; foreign direct investment into the economy drops by 28.1%; unemployment and underemployment rates stood at 33% and 22% respectively. This is even as headline inflation remains high at about 16.8%.
More worrisome is the fact that the Country’s total direct remittances dropped by $119.4m (48%) to $130.12m as of January 2022 from $249.52m as of December 2021; FG targets total debt stock of about N46.63trn which it services with about 95% of its revenue. And most problematic is political instability in the Country.
This scary scenario does not favour equities market growth as market participants are wont to be lethargic about their investments. But that is far from being the case in recent times. Also notably challenging is that the country has set a new borrowing limit, up from 25 per cent of GDP to 40 per cent of the GDP. This was contained in the Medium Term Debt Strategy and continues to leave many analysts scratching their heads given that the major revenue earner for the country, crude oil price, which has hit $100 and above pbd and above presently still fluctuates.
On its part, the World Bank has expressed fears that recession may hit many countries given recent head and tail winds caused by hyper- inflation and the Russia/Ukraine war which have affected supply chains that are yet to recover from the devastating effects of Covid-19.
These days, almost everybody is aware that Nigeria is competing for the poverty capital of the world with India. The Naira which exchanged at N220/$ by June 15, 2015 has depreciated by about 100 per cent to N606/$ this June 2022.
These notwithstanding, of the markets all over the world, NGX has remained one of the best performing in the recent times. For instance; the equities market sustained its bullish disposition, gaining 0.34% per cent as the All share Index and market capitalization rose from 52,917.76points on May 12, 2022 to close at 53,098.46 points on May13,2022. Similarly, the market capitalization also rose 0.34 per cent from N28,528trn to N28,625trn.
Since the year equities market has been relatively strong with the All share Index and market capitalization advancing to unexpected heights. Business Hallmark research reveals that the NGX All share Index rose 23.7% from 43,026.23 points on January 4, 2022 to 53,201.38 points on May 31, 2022.
Whereas the Nigerian stock market rallied in the month of May 2022, attributed to positive investor sentiment in the equities market with The All-Share index advancing by 6.75% to close the month at 52,990.23 basis points from 49,638.94 points recorded as of the previous month, analysts believe the recent raising of interest rates by the Central Bank of Nigeria raised Monetary Policy Rates (MPC) rates to 13 per cent may slow down equities bullish trend.
“The sharp rise in inflation across both the advanced and emerging market economies has generated growing concerns among central banks as the progressive rise in inflation driven by rising aggregate demands and wage growth has put sustainable pressure on price levels,” said CBN Governor, Emefiele at 285th meeting of the MPC.
“Consequently, the major central banks such as the U.S. Fed, the Bank of England, European Central Bank, and Bank of Canada have provided strong guidance of a progressive shift away from monetary policy accommodation to drive market interest rate which may ultimately impact capital flows away from emerging market economies.”
Head of Investment Research, Parthian Securities, Oluwaseun Dosunmu, had earlier predicted that equities market would look up in the short to medium term this year at a virtual session recently.
Dosunmu stated, “Every pre-election year, investors become wary and cautious of investing in the market. However, things have been moving in the opposite direction this year and the market performance has been impressive.
Critical analysis show that the market capitalisation dropped -0.91% from N25.543trillion in January 2022 to N25.311trillion in February 2022. It gained 12% from February to May 2022 while the market rose again 0.39 from May to June 10, 2022.
BH recalls that in the corresponding period of 2008, the market maintained a bullish disposition and investors smiled to the banks. The major indicators attained unprecedented heights.
The market capitalization peaked at about 13.1trillion and the All share Index gained a giddy height of 66,551.84 basis points on March 5, 2008. Most of the equities grew bullish and the Nigerian Capital Market was thrown into frenzy.
The market became the toast of the Nigerian Business community, with traders, civil servants, farmers and even students making equity investments.
Many analysts noted that the Nigerian Stock Exchange (NSE) became a beehive of activities with both investors and speculators scrambling to make a kill. Some individual stocks recorded over 100% appreciation while others edged up by 50% and above.
However, former President of ICAN and founder / Chief Executive Officer of Heritage Capital Markets, Mr. Chidi Ajaegbu who spoke to Business Hallmark sounded a note of caution to investor,
‘’So should I ask investors to continue to invest cautiously. It has to be a cautious investment. You need to diversify your investment if you ask me, some of you investment should be in hard currency, equity you need to balance your investment and manage it in such a way that a shock in one sector will not undermine your net worth’’.