Investors in Nigeria’s equity market encountered a significant setback in February, with losses amounting to about N1.55 trillion attributed to the allure of high yields in the fixed-income market.
The decision to raise the monetary policy rate to 22.75% is poised to exacerbate the situation, diverting investor interest away from the capital market in the short- to medium-term as they seek more lucrative returns.
At the start of February, the Nigerian Exchange commenced with the All-Share Index and market capitalization at 102,802.25 and N56.26 trillion, respectively. However, by the end of the month, these figures had decreased to 99,980.30 and N54.71 trillion, marking a 2.75% decline.
David Adonri, a stockbroker and Vice Chairman of Highcap Securities, noted that while the market pullback was anticipated, further corrections are anticipated as full-year results of listed companies are unveiled.
Adonri highlighted that the previous rally in equities was largely sentiment-driven, and now, with the emergence of full-year results, fundamental factors will play a central role.
He also suggested that the recent hike in the monetary policy rate will likely lead to a reduction in liquidity flowing into equities in the short term, thus preventing the formation of speculative bubbles that could harm the economy.
Additionally, researchers at Cowry Asset Management Limited projected that the increase in the monetary policy rate would slow down the flow of funds into the capital market, given the prevailing high-interest environment and rising yields in the fixed-income market.
During the week, the local bourse recorded a substantial dip, with the All-Share Index declining by 3.27% to 98,751.98 points. This was influenced by weaker-than-expected corporate earnings releases and the onset of the dividend earnings season amidst expectations of higher yields in the fixed-income market.
The decline in market capitalization mirrored the downturn, falling by 3.27% week-on-week to N54.04 trillion, resulting in a year-to-date return of 32.07%. Investors incurred a weekly loss of N1.83 trillion.
Across sectors, there was lackluster performance, with the Insurance and Industrial goods sectors experiencing the most significant declines, followed by the Consumer Goods, Oil & Gas, and Banking sectors.
Trading activity during the week saw 1.88 billion units of shares worth N34.149 billion exchanged in 48,464 deals, indicating increased activity compared to the previous week.
The financial services industry dominated trading by volume and value, followed by the conglomerates and oil and gas sectors.
Looking ahead, analysts anticipate potential market improvement as investors react to corporate earnings reports and announced corporate actions in the coming week.
