Aggressive gains in Nestle, Zenith bank, Dangote cement, MTN, others trigger circuit breaker on NSE

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…Market cap crosses N18trn mark as index rises beyond 5%

…Bubble may burst on equities market, stakeholders warn

By Kayode Tokede

Aggressive gains on listed banks shares, others trigged circuit breaker on equities market of Nigerian Stock Exchange (NSE) on Thursday.

The motive of the NSE circuit breaker policy was to guard against sharp market fluctuation as the All-Share Index (ASI) rises beyond five per cent threshold.

The management of NSE for the first time since its introduction by NSE in 2016, launched circuit breaker on Thursday, Nigeria NewsDirect can report.

The NSE in a statement posted on its website said that a market-wide circuit breaker kicked in on Thursday, at 12:55p.m, when the NSE ASI rose beyond the set threshold of five per cent.

It said that the rise triggered a 30-minute trading halt of all stocks.

Circuit breakers are trading halts used by exchanges to guard against sharp fluctuations on the market.

The exchange said that the circuit breaker protocol was triggered by the increase of the NSE ASI from 33,268.36basis points to 34,959.39 basis points, indicating a growth of 1,691.03 basis points or 5.08 per cent.

“The market reopened at exactly 1:25p.m. with a 10-minute intraday auction session, before resuming continuous trading till the close of the day at 2:30p.m.

“During the halt of trading, no order could be placed until trading resumed. However, existing orders could be withdrawn or canceled but could not be modified.

“Trading halts did not affect the clearing, settlement, and depository operations for matched trades, as these functioned as normal,” it said.

It added that all existing orders keyed in prior to the trading halt were re-activated and were matched upon resumption of trading.

Nigeria NewsDirect gathered that the equities market gained 6.23 per cent to close at 35,342.46 basis points on Thursday from 33268.36 basis points it closed on Wednesday.

Nigeria NewsDirect also gathered that a total of 65 shares gained against eight losers.

Further findings revealed that the share price of Cadbury Nigeria plc gained 10per cent to N11 on Thursday from N10.00 it opened for trading while BUA cement Plc appreciated by 10 per cent to close at N51.15 from N46.50.

The share price of Airtel Africa rose by 10per cent from N410.20 from N451.20 as Zenith bank added 9.96per cent to close at N28.15 on Thursday.

In addition, Dangote cement gained 8.11per cent to N200; Guaranty Trust Bank plc increased by 6.11per cent to N38.20; MTN Nigeria share price gained 1.25 per cent to close at N162 on Thursday.

Capital market analysts who spoke with our correspondent attributed the hike in market cap to Central Bank of Nigeria (CBN) significant reduction in money market instruments, stressing that the introduction of circuit breaker by NSE was to protect investors’ investment.

The vice president, Highcap Securities Limited, Mr. David Adnori stated that the introduction of circuit breaker was to forestall excessive trading on NSE.

According to him, “market operators were watching the trend and it became worrisome when the rally was excessive in the equities market and could no longer be rationalized under the current prevailing economy conditions in the country.

“Nigeria currently at stagflation due to COVID-19 ad security challenges. It became necessary for NSE to quickly intervene in order to prevent bubble and not to allow  the equities market exceed to a dangerous state. The fire ignited by CBN monetary policy by reducing interest on money market instrument resulted into assets bubble in the equities market.

“The circuit breaker was to forestall overheating of the equities market not to overstretch.”

He explained that the inflow into the equities market is coming from excess liquidity in the financial economy.

“With the lowering of interest rate on Treasury bill and bonds resulted into foreign investors, PFAs and high network investors to invest in equities market. The matured bond redeemed by CBN were paid off and these investors have cash to invest in the equities market

“All those funds have increased liquidity in the financial system and all these funds are flowing into the equities market.

“The equities market is not deep enough to absorb these excess funds and that has made the market overheated beyond expectation.

“That overheating can result in formation of information of bubble and a bubble will always burst, it will damage the equities market and economy at large. For that reason, NSE was forced to introduce circuit breaker.”

The Managing Director of APT securities limited, Managing Director/CEO of APT Securities and Funds, Mallam Garba Kurfi stated that circuit breaker utilization can be used for good or bad motive.

He said CBN crash in money market instrument continued to drive the equities market aggressively. He noted thst investors may begin to take profit as from next over uncertainty

However, the Professor of Capital Market, Uche Uwaleke said the action of management of NSE would stem market speculation.

According to him, “A circuit breaker, usually in form of a temporary trading halt, is conventionally used by an Exchange to stem panic selling and prevent stock market crash.

“It can also serve the purpose of stemming market speculation and cooling the market when a limit-up mechanism suggests that the market is getting over-heated.

“This is what has happened today when the Exchange got the market to cool off for a period of time before trading was resumed after the intraday price movement limit was exceeded,” he said.

Uwaleke, also President, Capital Market Academics of Nigeria, said that the development was a pointer to effective market regulation by the Exchange and commended it for the timely trigger.

“It’s important that bullish stock prices are justified by fundamentals otherwise a bubble sets in which can have grave consequences not only to the market but also the economy in general,” he added.

Analysts at Stanbic IBTC Plc stated that “The NSE circuit breaker was triggered today and trading was halted for 30mins after aggressive buying pushed the ASI above five per cent to 5.08 per cent, a move that seems unlikely given the outlook and perhaps the first in many years.

“The aggressive push has been primarily by local investors and retail clients – some speculative and others just seeking yields better than the almost nil returns in the Money markets.

“The absence of big international sellers has also contributed to this strong move – one in which some stakeholders are now becoming wary of. Please see an excerpt of the rule on circuit breakers below.Rule 15.46: Trading Halts Due to Extraordinary Market Volatility (Index Circuit Breakers). (a) The Exchange shall halt trading in all stocks and shall not reopen for the time period specified in this Rule if there is a Significant Market move in either direction.

“(b) For purposes of this Rule, a Significant Market move means a five per-cent (5%) move in price of the All Share Index between 10:15am and 13:45pm on a trading day as compared to the closing price of the All Share Index for the immediately preceding trading day.

“(c) Halts in Trading: if a Significant Market move occurs after 10.15am and any time up to and including 13.45pm The Exchange shall halt trading in all stocks for 30 minutes. The Exchange shall not halt trading if a Significant Market move occurs after 13.45pm.

The Exchange shall halt and reopen trading based on a Significant Market move only once per trading day.

(d) If, following the reopening of trading after a Significant Market move halt, the All Share Index moves further by a minimum of five per-cent (5%) below its closing value on the immediately preceding trading day, during any trading day The Exchange will halt all trading for the remainder of the day. The last traded price in any security prior to the closing of the market shall be deemed the closing price in such security for the day.

(e) Re-opening of Trading: the re-opening of trading following a trading halt shall follow the procedures as may be set forth by The Exchange.

“(f) Nothing in this Rule shall be construed to limit the ability of The Exchange to otherwise halt, suspend, or pause the trading in any stock or stocks traded on The Exchange pursuant to any other Exchange rule or policy.”