• Net gains in the year narrows to N628.1b
Investors in Nigerian equities suffered a major reversal last month with a net loss of N996.2 billion, more than half of the N1.62 trillion gain carried into the opening month for the second quarter.
Trading data at the weekend indicated widespread profit-taking sentiments during the month, despite the month coinciding with the release of earnings and dividends by quoted companies.
Benchmark indices at the Nigerian stock market closed April with a negative average return of -3.37 per cent, equivalent to net capital depreciation of N996.2 billion.
The bearish trading in April cut Nigeria’s world-ranking return from 5.82 per cent (or N1.62 trillion) in first quarter of the year to a modest four-month gain of 2.25 per cent or N628.1 billion at the weekend.
The All Share Index (ASI) – the common value-based index that tracks all share prices at the Nigerian Exchange (NGX), closed weekend at 52,403.51 points as against the month’s opening index of 54,232.34 points, its closing index for first quarter of the year. It had opened the year at 51,251.06 points.
Aggregate market value of quoted equities at the NGX dropped from the month’s opening value of N29.544 trillion to close weekend at N28.534 trillion, a drop of N1.01 trillion.The marginal difference between the decline rates of ASI and aggregate market value was due to delisting during the month.
Sectoral analysis showed a largely negative market sentiment, with most sectoral indices closing negative. But insurance and consumer goods stocks bucked the negative trend, as investors looked towards low-priced stocks and potential returns in underpriced consumer companies. The NGX Consumer Goods Index recorded the highest gain of 4.75 per cent. The NGX Insurance Index followed with average return of 3.87 per cent.
The NGX Oil and Gas Index dropped by 1.68 per cent. The NGX Banking Index recorded the highest loss of 3.29 per cent.The NGX Industrial Goods Index slipped by 0.38 per cent.
The NGX 30 Index, which tracks the 30 largest stocks at the exchange, closed last month with a return of -2.20 per cent. The NGX Pension Index, which serves as gauge for stocks that meet the more stringent investment guidelines for pension funds, dropped by 0.80 per cent while the NGX Lotus Islamic Index, which tracks stocks that comply with Islamic finance rules, declined by 2.68 per cent.
With Nigeria’s change of government scheduled for later this month, most analysts remained cautious of the market outlook.
Managing Director, Arthur Steven Asset Management, Mr. Tunde Amolegbe, said April probably suffered from the overhang of the elections and its aftermath.
“The impact of the currency crisis on investors’ confidence cannot also be ruled out. These two issues-elections and currency crisis, impacted corporate performance and since the stock market is a forward pricing indicator it was not a surprise that we closed negative for that month.
“My expectation is that post-inauguration the market is likely to see a transitional bounce in May and June,” Amolegbe, a former president, Chartered Institute of Stockbrokers (CIS), said.
Analysts at Cordros Capital Group said they expected that “decent earnings releases across board” for first quarter of the year to temper selling activities and support positive sentiments at the stock market.
“In the medium term, we expect investors’sentiments to be influenced by developments in the macroeconomic landscape and the movement of yields in the fixed-income space. Overall, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings,” Cordros Capital stated in a weekend review.
Analysts at Arthur Steven Asset Management said “investors should pay close attention to global indicators as well as trends under the current global situation”, while also urging investors to stick to “stocks with good fundamentals”.
Analysts at Financial Derivatives Company (FDC) attributed the negative performance in April to investors’ tentativeness and cautious trading”
“Concerns over an impending interest rate hike following the rise in Nigeria’s headline inflation to 22.04 per cent in March 2023 would continue to dampen investor sentiment and weigh on market performance in the near term,” FDC stated.
The immediate past month represents a slowdown for Nigerian stocks. With three consecutive years of bullish rally, first quarter 2023 performance had further strengthened the outlook for Nigerian equities, which closed 2022 with full-year average return of 19.98 per cent, equivalent to net capital gain of N4.455 trillion.
Nigerian equities had broken their known cycle of decline in pre-election year to record their third consecutive positive performance in 2022. Nigerian equities had closed 2021 with average return of 6.07 per cent, equivalent to net capital gains of N1.278 trillion. In the throes of the outbreak of COVID-19 pandemic in 2020, Nigerian equities had recorded average return of 50.03 per cent, representing net capital gains of N6.483 trillion.
Amolegbe said the market bucked its typical impact of election- and pre-election-related unfavorable closes, a positive sign on the overall outlook for the economy.
He explained that investors also responded to the increasing inflation by playing more in the equities market because it was higher than the coupon across all sovereign bond maturities.
According to him, the market initially reacted negatively to the interest rate hike, but as long as the inflation rate doesn’t significantly decline, investors will ultimately come back to the stock market attracted by the prospect of a positive real return. Most analysts expected inflation to remain on the upward trend in the meantime.