Low Fixed Income Yields Lift Stock Market by N6.27trn in Five Months

Kayode Tokede

The Nigerian Exchange Limited (NGX) appreciated by N6.27 trillion in the first five months of 2022 amid positive indicators that included low-yield in fixed securities, the increase in global oil prices and impressive corporate earnings of listed companies.

Precisely, the overall market capitalisation, an indicator used to track total value of all companies’ value on the NGX gained N6.27 trillion or 28.12 per cent to close May 31, 2022 at N28.568 trillion, higher than the N22.297 trillion it closed on the last trading day in 2021.

The market capitalisation in April had added N1.81 trillion to close at N28.568 trillion from the N26.76 trillion it opened for trading.

Consequently, the NGX All-Share Index, an indicator used to track the general market movement of all listed stocks on NGX, including those listed on the growth board, regardless of capitalisation opened 2022 at 42,716.44 basis points to close May 31, 2022 at 52,990.28 basis points, representing increase of 24.05 per cent.

However, in April 2022, the NGX All-Share Index gained 6.75 per cent to 52,990.28 basis points from 49,638.94 basis points it opened for trading.

THISDAY had reported that the NGX market capitalisation gained N3.02 trillion in the first quarter of the year amid the flurry of impressive earnings by major bellwethers and positive corporate actions

The market capitalisation had also gained N3.015 trillion to close on March 31, 2022 at N25.312 trillion from N22.297 trillion at which it opened for trading activities on January 4, 2020.

On the other hand, the NGX ASI rose by 9.95 per cent to close at 46,965.48 basis points in the first three months of the year.

The major drivers on the Nigerian Stock market in the first five months of 2022, were the performances of listed oil & gas, industrial banking and consumer goods companies.

For instance, the NGX Oil/Gas Index in five months gained 58.7 per cent to close May 331, 2022, at 547.57 basis points from 345.01 basis points, while NGX Consumer Goods Index rose by 10.6 per cent to close May 2022, at 651.73 basis points from 589.28 basis points the stock market opened for trading in the year under review.

In addition, the NGX Industrial Index increased by 9.26 per cent in five months of 2,194.24basis points from 2,008.30 basis points as the NGX Banking Index gained marginally 4.8 per cent to 425.71 basis points from 406.07 basis points.

The growth in stock prices was strongly bullish as all the indicators closed in the green between January and May of 2022.

Capital market analysts attributed the growth of the NGX to low-yield in the fixed income securities market, steady increase in global oil prices and listed companies’ impressive corporate earnings post-covid-19.

The National Bureau of Statistics (NBS) last week revealed in its first quarter 2022 report that the Nigerian economy expanded by 3.1 per cent year-on-year (y/y) in real terms in what was broadly a positive surprise as the growth print topped consensus expectations.

The expansion in Q1-2022 was despite the unprecedented developments in the global economic environment including rising inflationary pressure, higher importation costs (due disruption in the global supply chain), and geo-political uncertainties.

To the President of Association of Capital Market Academics in Nigeria (ACMAN), Prof. Uche Uwaleke, investors reacted following a strong international crude oil price which reduced the risk of external shocks, stressing that the insignificant impact of the Russian-Ukraine war on the Nigerian economy played a critical role in stock market growth in five months of 2022.

According to him, other factors included, “Relatively low interest rates in the fixed income market. However, this may reverse soon following the recent hike in the Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN).

“Effective regulation on the part of the SEC has helped to boost confidence.”

He added that, “Perhaps, the strongest driver has been improved corporate performance of many quoted companies. So, a lot of investors have engaged in bargain hunting in search of undervalued stocks thereby pushing up stock prices.”

Also, the CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka noted that improved liquidity in the stock market could be traced to 2021 performance by listed companies and improved performance by many of them in the first quarter 2022 results.

He added that, “Increased local investors’ participation in the market, and reinvestment of 2021 annual dividends by investors who received such dividend payments recently from listed companies.

“Liquidity overhang that is making it practically difficult for investors in the fixed income space to factor in current high inflation rate to the yields obtainable in the market.

“The negative real return in the fixed income market had forced some of these investors to embrace the equity market as an alternative investment class, before the recent 13 per cent hike in MPR by MPC of CBN. Even with the hike in MPR, we still have some traditional investors showing interest in equity market, which is known to readily adjust to inflation from time to time. Equity market is an inflation adjusting market.

“Availability of derivative instruments that now serve as perfect means of hedging against volatility and other risks in the equity market. This is capable of attracting liquidity to the equity market. More institutional investors, particularly pension funds and asset management companies, are likely to embrace equity market as a result, and we are beginning to see that in the market.”

In addition, he stated that sustainability of current trend was dependent on what happens in the fixed income market.

“The yields are rising moderately at this time, with potential attraction to investors in the fixed income space, even though the market is still largely challenged with liquidity surfeit.

“In my view, it is unlikely government would accept any further increase in the cost of debt capital, given the unsustainable and huge cost of servicing debts to government, especially now that MPR is at 13per cent. I expect these two important segments of the Nigerian capital market to be in equilibrium at some point, though.”

According to the Managing Director, ARM Securities Ltd, Mr. Rotimi Olubi, listed companies reported impressive corporate earnings in first quarter ended March 31, 2022 results compared to previous quarter.

He explained that, “There was significant improvement in listed companies’ earnings across key sectors such as the banking, and non-financial sectors like the Food & beverages. Take for instances, the stock prices of Nigerian Breweries Plc and Guinness Nigeria appreciated significantly this year. These companies’ quarterly performance attracted investors and we witnessed soar in their stock prices in the months under review.

“Low-yield in fixed income securities is also another major contributing factor to N6.62trillion gain in stock market in five months of 2022. The drivers witnessed in the stock market have multiple indicators.”

Analyst at PAC Holdings, Mr. Wole Adeyeye attributed the stock market growth to investors’ expectation of dividend payout amid impressive corporate earnings by listed companies.  

He said, “A lot of investors positioned themselves for dividend payout and it improved stock prices.”

He also mentioned that the low-yield in fixed income securities discouraged investors in the money market instruments, blaming it on high inflation rate. 

Speaking from a different perspective, the doyen of the Nigerian capital market, Mr. Rasheed Yusuf, said increasing global oil price played a critical role in the growth of the capital market in five months of 2022.

According to him, “The current global oil price that is above $100 per barrel has translated into more revenue for the federal government and more spending. Since there is more revenue for the government, there will definitely be more spending and more business opportunities for individuals and companies listed on the NGX.

“Everybody was thinking Nigeria will be in an economic crisis but with oil revenue above $100 per barrel over the Ukraine-Russia crisis, the government has been able to manage the subsidy.

“The global oil price has breathed a new life into companies in the country and investors’ expectation is that these companies will make good profit and it has contributed to growth in their stocks.

“Most of them recently released the 2021 financial year, first quarter results and we have seen impressive corporate earnings. The performance of these companies has reflected in their corporate earnings.”