Stories by Kayode Tokede and OlabodeJegede
Investors’ investment in the nation’s equities market has depreciated by N1.66 trillion in nine months of this year, despite an early impressive price appreciation in leading blue chips companies.
Data gathered by Nigerian NewsDirect revealed that the equities market capitalisation, a parameter used in measuring the value of all companies traded depreciated by 12.2 per cent or N1.66 trillion to N 11.96 trillion as at September 28, 2018 from N13.62 trillion it opened for trading this year.
The market capitalisation resumed a booming trend this year, peaking at N15.89 trillion in January 2018.
The equities market slump has been consistent since tail end of January as political turbulence in the country heightens.
The Central Bank of Nigeria (CBN) stability in the foreign exchange market coupled with introduction of Investors & Exporters Foreign Exchange (I & E) FX window played critical role in the equities market.
Since the third quarter of this year, the wealth effect from the equities market has been eroded, underscored by investors, most especially foreign investors cautiously trading in blue chips companies.
The Nigerian Stock Exchange (NSE) All-Share Index has depreciated by 14.3per cent in nine months to 32,766.37 basis points from 38,243.19 basis points, translating into investors losing 14.3 per cent of their investment in nine months.
Consequently, the NSE-Main Board Index dropped by 14.69 per cent to 1,461.93 basis points from 1,713.69 basis points the market opened this year.
Share prices of companies in the Fast Moving Consumer Goods (FMCG), industrial that has Dangote Cement, Insurance and banking sectors have depreciated.
Specifically, the NSE Consumer Goods Index has dropped by 22.3 per cent to 758.36 basis points from 976.10 basis points while the NSE Industrial Goods Index dropped to 1,528.69 basis points from 1,975.59 basis points, translating into 22.62 per cent decline in banking shares listed on NSE.
The NSE Banking Index dipped by 13.5 per cent to 411.25 basis points from 475.44 basis points the equities market opened for trading this year.
In addition, the NSE Insurance Index declined by 10.11 per cent to 125.27 basis points from 139.37 basis points the equities market closed 2017.
Amid the equities market decline, the nation’s economy has continued also on weaker parameters, according to National Bureau of Statistics (NBS).
The bureau had disclosed that Gross Domestic Product (GDP) rate recorded a decline in performance from 1.95 per cent in the first quarter to 1.5 per cent while Inflation rate slowdown to 11.23 per cent in August 2018, from 11.14 per cent in July 2018.
The Monetary Policy Committee (MPC) of the CBN noted that inflationary pressures have started rebuilding and capital flow reversals have intensified as shown by the bearish trend in the equities market even though the exchange rate remains very stable.
The members were concerned that the exit from recession may be under threat as the economy slowed to 1.95 per cent and 1.50 per cent in Q1 and Q2 2018, respectively.
At the last MPC meeting, the CBN governor, Mr. Godwin Emefiele said, “The rise in headline inflation was from food, while core inflation declined, indicating that supply side factors were driving the price increase.
“The near-term upside risks to inflation remained the dissipation of the base effect, expected 2019 election-related spending, continued herdsmen attack on farmers and the current episodes of flooding which has destroyed crops and would affect food supply and prices.”
Speaking with our correspondent during the weekend, a stockbroker and Managing Directors, Highcap Securities, Mr. David Adnori said, “In summary, it was actually not profit- taking that led to N1.66 trillion drop in the equities market.
“It is withdrawal from equities market by investors as a result of dwindling investor’s confidence which can be linked to the increasing country risk caused by political uncertainty as we drive towards the general election.”
He noted that macroeconomic indicators especially the comment by the MPC that the economy can slide into recession if certain things are not put in place in the nation’s economy.
He said, “For instance, they said the headline inflation has started to increase and the rate of decline of inflation rate has also diminished and the growth rate of the economy is no longer increasing compared to the previous quarter.
“Those are some of the factors that adversely affected investor’s confidence in the economy. Otherwise, there are other positives that ought to give confidence in the economy like the foreign exchange rate and monetary policy rate has been stable.”
Speaking on the equities market expectation in the last quarter of 2018, he said, “We might just see a market that is stable or suffers a little decline because the political risk is increasing by the day as regard towards the general election due to the fact that a lot of participants in the electoral process and observers have fingered short-comings.
“So, confidence in the electoral process is low. The current labour strike also a part and we are entering into the season where the market closed down naturally. Those factors would actually tell whether it will be stable or decline but the advantages there is that it still a buyers’ market.”