Guinness Nigeria’s stock price dropped on the day it released its financial result with a proposal to pay investors over N1.00 dividend per share.
Zenith Bank released an impressive financial result that offered investors over N1.70 dividend per share, yet its share price went down.
Sarah Alade, acting CBN Governor
Similarly, despite a fairly good audited financial result that proposed N1.25 dividend per share, the shares of GT Bank tumbled.
The list is long of tumbling equities whose impressive fundamentals could not be rescued out of bear grip. And, at the moment, that is the grave situation of the equities market.
Market hollowness often shows up each time foreign portfolio investors take flight, leaving in their trail a persistent bearish trend that makes investors suffer unbearable losses.
The market posted minus 7.98 per cent on March 25, an improvement in the last four days of the previous week after market performance indicators tended to bottom out on March 19.
It was then that the Nigerian Stock Exchange (NSE) All Share Index, which opened on January 2 at 41,329.19 basis points, recorded a cumulative decline of 4,192.59 basis points to close at 37,136.60.
Market capitalisation saw a cumulative loss of N1.3trillion to close at N11.928 trillion, down from N13.226 trillion.
This was a mild crash which probably passed unnoticed because local retail investors are no longer interested in the market which fills them with sad memories of unprecedented losses between 2008 and 2009.
An equities market that recorded a rapid decline in three months demonstrates hollowness with a high level of investment risk.
Micro and macro-economic factors combined to worsen the state of the capital market which some brokers insist has not improved since Oscar Onyema assumed office as NSE Chief Executive Officer in May 2009.
Capital market reacts to developments in the micro and macro economy, and the Nigerian capital market reacts appropriately, such that whenever monetary policy rate changes, the market reacts.
Depletion of foreign reserves, persistent depreciation of the naira against the dollar, and the increasing pressure to devalue the naira, all influence the attitude of equities investors. Foreign reserves were depleted by $2.439 billion as of February 20.
Lambeth Securities Chief Executive Officer, David Adonri, reiterated that the market has been reacting to macro and micro economic forces.
He said the fear of the devaluation of the naira, coupled with increasing tight monetary policy, is responsible for the persistent bearish trend, and “that is what foreign and institutional investors are reacting to, making them to sell off their shares.”
He maintained that “it has nothing to do with the proposed recapitalisation of stockbroking firms” over which some operators have threatened court action.
A similar losing trend dominates trading sentiments in the fixed income market, Adonri noted, “which is why yield in the secondary market of fixed income is dropping because prices are dropping.”
He predicted that the equities market may depreciate further in the second quarter, or remain flat, if the Central Bank of Nigeria (CBN) continues to tighten monetary policy.
Another dealing member of the NSE, who did not want his name in print, blamed regulators for the troubles.
Said he: “We have since advised the government to come up with market stabilisation fund, as it did in the banking sector, textile, agriculture and aviation, but it refused to heed our advice.
“And when regulators eventually came up with the market makers, they were not backed with funds. The government did not finance them; they only appointed market makers, and no bank is backing them up with funds.
“They have since run out of cash. The market crashed about three weeks ago after the market cap nose-dived to a little above N11 trillion from about N13.8 trillion. That is worse than the previous decline of 2008 when market cap dropped to about N8 trillion from about N12.4 trillion.”
The Monetary Policy Committee (MPC) increased Monetary Policy Rate (MPR) by 275 basis points to 12 per cent in October 2011.
This was caused by price and exchange rate instability and global occurrences which stoked capital outflow from emerging and frontier markets, triggered by the sovereign debt crisis in the euro zone.
To support the naira, the MPC decided in January this year to leave the benchmark interest rate unchanged at 12 per cent, for the 14th consecutive time, and increased the Cash Reserve Ratio (CRR) on public sector deposits to 75 per cent from 50 per cent. CRR on private sector deposits was left at 12 per cent.
Factors that led to the rise the MPR to 12 per cent in 2011 – exchange rate instability increase in core inflation and falling foreign portfolio investments (FPI) and foreign direct investment and (FDI) inflows – are resurfacing.
MPC tightening and the rise in CRR on private sector deposits from 12 per cent to 15 per cent up imply that more money will be withdrawn from circulation in the weeks ahead.
Therefore, shares and rates of credit instruments are tumbling. Investors’ demand for treasury bills declined on March 27 as yields on all instruments advanced by 0.17 per cent across tenors, leaving an average rate at 13.91 per cent.
Demand for treasury bill instruments rose recently as yields have declined by 0.36 per cent since March 17.
