Equities market records N15trn half-year gain as investors defy CBN’s rate hike

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The Nigerian stock market recorded a bullish performance in the first half of the year as investors gained over N15 trillion despite the Central Bank of Nigeria rate hike that normally would discourage investment in equities.

The CBN had raised the benchmark interest rate by 750 basis points to 26.25 per cent from 18.75 per cent within the first half of the year to bring down inflation. However, the apex bank’s orthodox method has yet to yield the expected result.

According to market analysts, an interest rate hike discourages investment in the stock market and pushes investors to invest in the fixed-income market including in bonds and treasury bills.

Figures from the stock market in the first half of 2024, saw investors grab about N15.68 trillion, representing the highest gains recorded in the history of the Nigerian stock market.

Last year, investors in the stock market gained N13 trillion.

The market capitalisation, which represents the total value of companies listed on the Nigerian Exchange Limited, rose to N56.60 trillion as of the last trading day in June from N40.92 trillion when the market opened for trading in January this year.

Also, the All-Share Index crossed the 100,000 mark to settle at 100,057.49 basis points at June end, from 74,773.77 points it opened in January.

On sectoral performance, except for the banking index which closed in the red, all other indices closed in the green.

Although the stock market is expected to remain bullish in the second half of the year on account of banks’ recapitalization exercise, there are worries that the market is still burdened with increasing concerns over uncertainties in the economic climate of Africa’s fourth largest economy and the implications of government policies on the investment climate.

Meanwhile there are concerns expressed by some that the improvement in the market generally has not necessarily translated into an improved economy for the country.

Already, the Federal Government is apprehensive that low oil production would put its 2024 budget revenue at risk, making analysts query why the government has yet to maximise the opportunities in the market for economic development.

Every month, the NGX polls trading figures from market operators on their domestic and foreign portfolio investment flows.

“Figures from the stock market in the first half of 2024, saw investors grab about N15.68 trillion, representing the highest gains recorded in the history of the Nigerian stock market.”

Between January and May, which was the latest data released by the NGX, foreign transactions in the Nigerian market rose by 134 per cent to N124.28 billion from N53.11 billion.

Similarly, data released by the National Bureau of Statistics last week showed that capital importation into Nigeria saw a remarkable increase of 198.06 percent year on year, reaching $3.38 billion in the first quarter of 2024, up from $1.13 billion in the same period of 2023.

This also indicates a 210.16 percent quarter on quarter rise from $1.09 billion in the last quarter of 2023. This is the highest inflow recorded since the pandemic era ($5.85 billion in Q1 2020) and can be attributed to improved investor sentiment and confidence, despite incoherent foreign exchange policies and the devaluation of the local currency.

Over the last 16 quarters, capital inflows into Nigeria have struggled to return to the pre-pandemic quarterly average of $5 billion, raising concerns and prompting a closer examination of the factors contributing to the downturn in foreign investment. Key issues include policies on foreign exchange liquidity and other macroeconomic challenges that continue to impede the sustainable inflow of investments.

Analysis of the capital importation data by Cowry Asset Limited showed that portfolio investment ranked highest with $2.08 billion, accounting for 61.48 percent of the total capital inflow during the period.

This indicates that investors took advantage of the high-interest rate environment, where money market instruments ($1.61 billion) and bonds ($420.8 million) became more attractive due to higher returns and a positive outlook for the fixed income market.

Meanwhile, there was a 77.8 percent year on year decline in investment into equities, contrasting with a 355.7 percent quarter on quarter improvement to $49.4 million.