The Nigerian stock market witnessed a reversal of its bullish trend in the week that ended on July 14th, 2023, as investors expressed concerns over the sustainability of the rally that had pushed the NGX Index to a 15-year high.
The market declined by 0.7% during the week, the first weekly loss in July, as sell orders outnumbered buy orders across most sectors.
The market capitalization of NGX Equities also dropped by N1.7 trillion in three days, erasing some of the gains made earlier in the month and striking fear that the bullish run may have slowed.
The bearish sentiment was triggered by a combination of factors, such as profit-taking, reduced buying pressure from market makers, and an exit from the market by a foreign investor.
According to stockbrokers who spoke to Nairametrics, many investors decided to take profits after seeing double-digit returns on their portfolios in a short period of time following the May 29th presidential inauguration.
They also said that some of the major market movers who had been driving the demand for stocks in June and early July reduced their purchases as they felt that some of the share prices had exceeded their fair value levels.
For instance, some of the banking stocks that had recorded significant gains during the bull run experienced a sharp correction during the week, falling by 14.2%. Almost all the banks posted losses during the week, retreating from their multi-year highs.
Another factor that may have contributed to the market downturn was the liquidation of the Global X MSCI Nigeria ETF (NGE) by Global X ETFs, a New York-based provider of exchange-traded funds (ETFs). The fund had announced in June that it had scheduled to close down the NGE fund due to low assets and trading volume.
Sources told Nairametrics that the liquidation may have led to some selling pressure on the Nigerian stocks that were held by the fund, especially in the consumer goods and industrial sectors.
The depreciation of the naira against the dollar during the week also added to sell pressures as portfolios denominated in naira lost value in dollar terms. Some analysts opine this may have weighed down on investors’ confidence as they envisage more negative headwinds.
What they are saying
David Adonri, Executive Vice Chairman of Hicap Securities Limited, said the market lost steam due to fatigue.
- He noted that there was heavy profit-taking by both local and foreign investors, which led to the market shedding weight.
- He also opined that the market is likely to remain volatile in the near term, as investors assess the impact of the recent reforms and the half-year results.
- However, he believes that the long-term outlook for the Nigerian stock market remains positive, given the country’s economic reforms.
Olatunde Amolegbe, former President of the Chartered Institute of Brokers (CIS) and Managing Director of Arthur Steven Asset Management Limited, said the drop is a reflection of a natural market process.
- “It is usual for the market to experience profit-taking after a period of rally,” he said. “The drop is an opportunity for other potential investors to take a position in the market. The drop we see is not triggered by any news, events, or exit of foreign investors.
- “Any upward and downward movement in the market presently is attributed to local retail and institutional investors.
- The new reforms are pointers that will attract foreign investors who have written off Nigeria as an investment destination. We expect that the market will turn around soon as corporate half-year results are expected to hit the market in no distance time.”
Earnings Season
Despite the negative performance during the week, investors remain optimistic as we enter the earnings season.
- Preliminary indications suggest that banks are likely to report strong results for the second quarter of 2023, as they benefit from positive expectations from the removal of fuel subsidies, floating of the exchange rate, and other policy decisions of the government.
- Investors will be looking out for any guidance or outlook from the companies on their future prospects and challenges, as well as any dividend announcements or share buybacks that could boost shareholder value.
Market operators also opine the sell-offs is nothing to worry about as week on week less than N300 billion was lost in market valuation.
Meanwhile, Nigeria’s Statistics Bureau is expected to announce the inflation report on Monday, July 17th, 2023.
- Nairametrics anticipates a slightly higher rise in inflation for the month of June 2023.
- The Central Bank monetary policy committee is also expected to meet this week, for the first time since 2014, without Godwin Emefiele in charge.
- The committee will be expected to deliberate on the Exchange rate, inflation rate, and monetary policy issues.
There are indicators that the Nigerian economy economy will significantly growth based on the excellent steps taken by the Government of the day.
I am positive that this government will deliver Nigeria from economic problem considering the economic friendly policies it has been putting the grounds.
Why won’t investors anxiety surge when SEC is watching registrars openly and shamelessly stealing Unclaimed dividends. There are various ways they do it. First they intentionally ensure that your dividends are captured in unclaimed dividend. If you like provide Aso Rock address, they will not send it.
When you now apply for your funds, it is either they deduct from.youroney directly or invite you to their office to settle that portion they want to deduct. In which portion of CAMA is it written that registrars can take out of investors funds. Some investors who are unwilling to accept this brazen and open stealing abandon all the funds with the registrar. This is an example of why the Nigerian capital market will continue to regress worsened by an ineffective and powerless SEC. Financial inclusion is a scam!