Key highlights
- The Nigerian stock market experienced a loss of N674 billion during the first trading week of the second quarter of 2023, indicating that the market could face mixed sentiment in Q2.
- Market operators have expressed mixed feelings about the outcome of market activities in Q2 due to the current political uncertainties and other economic headwinds such as inflation, interest rate hikes, Naira redesign, and the disputed 2023 general election.
- Despite the current uncertainties, some market analysts still expect the market to witness positive momentum in the second quarter due to the expected microeconomic changes from the incoming government.
The equity market loss of N674 billion recorded in the first trading week of the second quarter is a signal that the market may experience mixed sentiment during Q2. This is even though the equities market closed the first quarter ended March 31, 2022, in the green territory with the NGX All-Share Index appreciating by 5.8% to close at 54,232.34 index points.
Market operators have expressed mixed feelings about the outcome of market activities in the second quarter of the year following current political uncertainties and other economic headwinds.
The rising inflation, interest rate hike, Naira redesign, and above all, the disputed 2023 general election are key factors expected to further dampen market confidence in the nation’s local bourse.
Contrary to the expectations that investors would increase their buying pressures in hopes of impressive full-year 2022 corporate earnings results, the equity market witnessed selling pressure.
During the first week of trading sessions in April, the first month of the second quarter of 2023, the domestic bourse sustained the losing streak, bringing down the benchmark index by 2.28% to close at 52,994.13 points.
Market performance
Available statistics from Nairametrics show that the All-Share Index, which is the broad index that measures the performance of Nigerian stocks, opened the second quarter at 54,232.34 index points at the beginning of trading on the week of April 3, 2023, and closed at 52,994.13 points at the end of trading on April 6, losing 1,235.21 basis points or 2.28%.
Further analysis reveals that activities on the Nigerian Exchange Limited (NGX), which opened the trading year at N29.543 trillion in market capitalization at the beginning of trading, closed the first trading week at N28.869 trillion, incurring a loss of about N674 billion or 2.28% week-on-week (WoW).
Nairalytics data also indicate Nigerian stocks have ended in the red in the election years of 2015 and 2019 respectively. Stocks have also lost at the end of Q2 in all but one of the last 4 years.
The outcome of general elections/economic headwinds
Mr. David Adonri, Executive Vice Chairman of Hicap Securities Limited, also in a chat with Nairametrics, said that the equity market might witness negative performance in the second quarter because of the murky nature of the end of the 2023 general elections.
The outcome of the elections has remained questionable and under contention, rate hikes, and the damaged currency caused by the Central Bank of Nigeria’s policy, which has caused uncertainty.
- “Though these events occurred in the first quarter of 2022 the effect will be manifest in the current second quarter of 2022. The effect will be transmitted through the Q1 results that will be released in Q2 which will not be palatable. That would throw the stock market into the buyers’ market. It is also expected that the Federal Government will swoon into the debt market with new issues which will cause migration from the financial market to the debt market,” Adonri said.
Mixed sentiments
Mr Tajudeen Olayinka, Chief Executive Officer, Wyoming Capital and Partners Limited, also in an exclusive chat with Nairametrics, said that the market will continue to experience mixed sentiments in the second quarter of 2023, with occasional reactions to possible appointments and expected governance structures from the office of the president-elect.
- “Market is somehow comfortable with the emergence of one of the three leading presidential candidates that were projected to win the presidential election in February 2023 because of their preference for private-sector dominance.
- “Not much of a disruption is expected between now and May 29, 2023, as investors continue to take a bet on a positive outlook in the second half of the year,” he said.
Price adjustment
According to the Managing Director of Crane Securities Limited, Mr Mike Eze, there was a lull in the last quarter of 2022, which flowed into Q1 2023. Eze noted that the lull was caused by the election year, which further dampened the market. He also added that the market experienced a run due to the cash swap policy implemented by the Central Bank of Nigeria.
Eze pointed out that the market has an automatic adjustment mechanism, and he expects that the current sell-off will be reversed. He is optimistic that the second quarter will be vibrant, leading to increased profitability in the market.
- “This is because the elections are over and there is a reversal in the cash policy of the CBN, hence there are now available funds in the hand of investors. Retail, wholesale, institutional and foreign investors will take advantage of the availability of funds to take a position in the market. There will be intense activities in the market going forward,“ Eze said
Microeconomic changes expected
The Managing Director of Arthur Steven Asset Management Limited, Mr Olatunde Amolegbe, told Nairametrics that the expectation is that the market will witness positive momentum.
According to him, what the market witnessed in Q1 is expected to be carried on to Q2.
Amolegbe noted that some of the microeconomic changes expected from the incoming government are likely to have a positive impact on the stock market.
- “It is expected that the fuel subsidy will be removed which will impact government revenue positively. We also expect changes in forex management policy which will also have a positive impact on the economy as a whole. All of this should bode well for the market. All the expectations are that Q2 will end up being positive,” he said.
What you should know
The NGX All-Share Index and Market Capitalization depreciated by 2.28% to close the week at 52,994.13 and N28.869 trillion, respectively. Similarly, all other indices finished lower except for NGX Insurance, which appreciated by 2.19%, while the NGX ASeM and NGX Growth indices closed flat.
A total turnover of 1.054 billion shares worth N10.050 billion in 16,155 deals was traded this week by investors on the floor of the Exchange. In contrast, a total of 2.071 billion shares valued at N17.562 billion exchanged hands last week in 17,917 deals.
Over the week, Airtel Africa with a loss of -10.00% w/w, Zenith Bank Plc with a loss of -1.35% w/w, and GTCO, which declined by -4.31% w/w, were the major heavyweights that dragged the market down. Consequently, the year-to-date (YTD) return fell to 3.40%, while the market capitalization shed N674.53 billion w/w to close at N28.87 trillion.
