Since the start of April 2024, the Nigerian stock market has been on a bearish run, with the All-Share Index (ASI) declining by 6.16% and the market capitalization falling by N3.63 trillion within the same period.
On April 24, 2024, the Nigerian Exchange Limited (NGX) closed with an ASI of 98,121.3 points, in contrast with the 104,562.06 points by the start of the market in April. In terms of market capitalization, the NGX closed April 24 with a market cap of N55.49 trillion, in contrast with N59.12 trillion at the start of the month.
However, the massive loss incurred in the NGX this month has been offset by the impressive gains produced in the market in the first quarter (Q1) 2024. As of April 24, 2024, the NGX has a year-to-date return of 31.2%.
Banking stocks are the major culprits
The bearish run in the market has majorly been triggered by the bearish run of banking stocks since the announcement of the recapitalization exercise.
Since the start of the month, FBN Holdings has lost 44.4%, Access Holdings has shed 34.5%, GTCO has declined by 31.4%, with Sterling Holdco losing 21.7%. All the banks listed on the NGX, except Ecobank Transnational, have recorded massive losses in April. For example, UBA has declined by 18.9%, Stanbic slumped by 19.6%, and Zenith Bank fell by 17.8%.
In an earlier report by Nairametrics, an expert attributed the bearish sentiments of banking stocks to shareholding dilution that would occur due to capital raises.
He noted, “In the short term, there’s going to be a significant dilution of shareholding. The market is not very thrilled about the dilutive effect.”
However, as banking stocks keep plunging, concerns have been raised about the ability of these banks to raise the amount of capital they need in the NGX. As it stands, Nigerian banks need to raise about N3.9 trillion to meet up with the new minimum capital requirements, and many of these banks are turning to the NGX for this purpose.
High yields in the fixed income markets also responsible
With the Central Bank of Nigeria (CBN) also issuing NT-bills at rates as high as 21% in the primary market, it is more probable that investor sentiment will be drawn more to less-risky government securities.
As of April 24, 2024, benchmark NT-bills were trading in the secondary market (FMDQ Securities Exchange) at rates as high as 23.87% and 28.00%, reflecting some of the highest yields available on T-bills globally.
For some experts, this is a significant contributor to the downward trend observed in the NGX.
According to Oluwaseun Magreola, Head of Investment Management at STL Asset Management Limited, “Once rates become high and investors can get risk-free returns north of 15% in the fixed income market, we tend to see a negative turnout for the equities markets, as investors would generally sell out of their equities positions to pick up risk-free returns in the fixed income market.”
Other significant losers
Apart from banking stocks, some of the blue-chip stocks have also contributed to the market’s losing streak. For example, MTN Nigeria has lost 13.1% this month, Dangote Cement has fallen by 4.4%, with Transcorp Hotels declining by 10.2%.
