The Exchange Turns Red In Q3, Bleeds Off N1.48trn
The sign of a troubled economy manifested in the just concluded third quarter when the Nigeria’s stock market closed negative, buoyed by adverse performance across all the sector, leading to a N1.48 trillion loss to investors.
The domestic bourse has seen positive performances in the previous quarters with the All-Share Index (ASI) and market capitalisation rising by 10.33 per cent and 10.37 per cent to 51,817.59 basis points and N27.94 trillion in Q2. In Q1, the ASI rose by 9.95 per cent to 46,965.48 basis points and the market cap by N 18.85 per cent and N25.31 trillion.
However, InsideBusiness analysis of the market performance in Q3 shows that the ASI and market cap dropped by 5.39 per cent and 5.31 per cent to close at 49,024.16 basis points and N26.45 trillion even as all the sectoral indices closed in the red.
The industrial index led the negative performance declining by 17.61 per cent to 1,773.22 basis points, followed by the oil and gas index which moderated by 6.80 per cent to 508.26 basis points.
The consumer goods index, which came behind, saw a 6.30 per cent decline to 584.68 basis points after rebounding by 12.6 per cent to 623.99 basis points in Q2 from a negative performance of -5.96 per cent drop to 554.16 in Q1.
For the third consecutive quarter, the insurance index has further widened its losses. In the quarter under review, the index fell by 5.46 per cent to 168.6 basis points after a dip of 4.21 per cent to 178.33 basis points in Q2 and -6.03 per cent to 186.16 basis points in Q1 respectively.
Also, the banking index dropped by 4.67 per cent to 379.2 basis points in the review quarter to record second consecutive losses, after dropping by 2.81 per cent to N397.79 in Q2.
A further look at the company’s performances, both large and middle capitalized stocks revealed in the industrial index BUA Cement led the pack, declining by 27.68 per cent to N52 while Dangote Cement lost 10.91 per cent to N245.
Seplat Energy, a company listed on the oil and gas sector, shed 3.85 per cent to N1,250.
In the consumer goods index, Okomu Oil Palm fell by 13.19 per cent to N188.3; Nestle Nigeria suffered a 13.21 per cent to N1,215. While Transnational Corp of Nigeria dipped by 10.57 per cent to N1.1, MTN Nigeria Communications declined by 13.13 per cent to N199.8
While in the banking sector, Access Holdings shed 12.97 per cent to N8.05; FBN Holdings lost 12.07 per cent to N10.2; Guaranty Trust Holding Company dipped by 13.41 per cent to N17.75; and Zenith Bank declined by 7.83 per cent to N20.
There are notable factors responsible for the negative performance of the Nigerian stock market, the jacking up of the monetary policy rate (MPR) from 11.5 per cent to 13 per cent during the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) meeting in May was one, an investment and portfolio analyst, Abel Ezekiel, said.
Before then, the equity market (NGX ASI) was closing about 53,000 basis points while market capitalization was about N30 trillion, he noted.
“The market gained almost N1.6 within May making it the heaviest ever gain within a month in recent years.”
“So, CBN intervention in moving the rate up was targeted at taming the spiraling inflation as at then about 17.71 percent which inches up interest rate environment in the bond market, thus leading to the massive movement of fund away from equity investment by major corporate and high network investors,” Ezekiel explained.
He also attributed the negative performance to the exit of many foreign portfolio investors’ markets, hence the massive divestment by this critical segment negatively dragged down the index.
“As really one cannot blame them as the interest rate environment in their domestic economy has seen rates go up and investors whose ultimate aim at avoiding a risky economic atmosphere will naturally move away their funds to less risky assets and business environment.
Commenting on why all sectoral indices closed in the red, he said the reasons could not be a single factor as the companies operate in different sectors of the economy.
According to him, most of the quoted companies in the insurance industry are faced with huge claims payments which some can’t cope with and most claims arise from harsh operating environments.
“Remember two insurance companies, Niger Insurance, and Standard Alliance Insurance, were delisted from the NGX for failure to meet regulatory requirements and it was just last week Royal Exchange Insurance suspension was lifted since July 2 when the halt in its trading and shares were imposed after three months of inactivity.
“For other companies like banks, Consumer goods, etc, operating expenses (OpEx), high energy cost, high cost of funds, the harsh operating environment has impacted negatively on their bottom-line, Ezekiel said.
He noted also that most banks have now adjusted downward their business hours to manage ever-skyrocketing overheads.
“A lot has adopted the Covid-19 pandemic strategy of allowing their staff to work from home all in an attempt to slow down rising overhead, to remain competitive and still be able to declare some dividend for their shareholders.
“Hence, we see Zenith, GTCO did interim dividend of 30k while Access, UBA did 20k. We saw a new entrance into the interim dividend payment club of Fidelity Bank that declared 10k for the first time for their shareholders which is commendable on the part of the management of the bank, Ezekiel added.
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