Stock Market Slumps by N650.5bn in February as Investors Switch to T-bills

Kayode Tokede

The stock market of the Nigerian Exchange Limited (NGX) dropped by N650.5 billion in February 2024 amid corporate earnings by listed companies, as  investors divested into the Treasury Bills (T-bills) market.

Investors pulled out from the stock market during the month over the attractive yield on the Central Bank of Nigeria (CBN) on T-bills as the inflation rate increased to 29.9per cent in January 2024.
Specifically, the overall market capitalisation closed February 29, 2024 at N54.707 trillion, dropping N650.5 billion or 1.18 per cent from N55.358 trillion it closed for trading on January 31, 2024.

Also, the NGX All-Share Index (NGX ASI) dropped to 99,980.30 basis points as of February 29, 2024, about 1,174.16basis points or 1.16per cent decline from 101,154.46 basis points it opened for trading in the month under review.
The stock market in January 2024 gained N14.4 trillion and 35.29 per cent in market capitalisation and NGX ASI, respectively as investors invested in fundamental stocks in anticipation of dividend pay-out and hedging against the double inflation rate.

This brings the investors return in the first two months of 2024 to N13.79 trillion and per cent in market capitalisation and NGX ASI, respectively.
THISDAY gathered that the CBN in March plans to sell N822.63 billion worth of T-bills while for April, it plans to raise N292.20 billion worth of T-bills and for May it wants to sell N388.33 billion worth of T-bills.

The CBN in February sold N1.58 trillion worth of T-bills to the investing public at a 19 per cent interest rate to mop up excess liquidity in the financial system. All tenors of its last auction were oversubscribed- a clear sign of the voracious appetite of investors in the security.
The Chief Executive, Wyoming Capital and Partners, Tajudeen Olayinka, said the stock market is now in a ‘repricing’ mode because of interest rate hike and continued issuances of one-year Treasury bills at high effective yield of over 20 per cent. “So, we are witnessing a shift to fixed income market,” he said.
The Managing Director, ARM Securities Limited, Rotimi Olubi said the high fixed-income yield is driving traction from the equities market to the fixed-income market.

“We expect this to be sustained in the short term given the recent 400 basis points hike in interest rate.
“However, this presents an opportunity for investors to enter into the equities market at a cheaper price in order to lock in on dividend payments in the coming months,” he stressed.

Capital market analysts stated that the stock market downward momentum will persist in March, following the CBN’s move to tackle rising inflation rate.
The Monetary Policy Committee (MPC) of the apex bank at its first meeting of 2024 voted to raise the Monetary Policy Rate (MPR) by 400 basis points to 22.75 per cent from 18.75 per cent.
The members after the two-day meeting in Abuja increased the asymmetric corridor to +100 basis points /-700 basis points (previously: +100 basis points /-300 basis points).

The members also voted to increase CRR to 45 per cent from 32.5 per cent; and retain liquidity rate at 30per cent.
The CBN Governor, Olayemi Cardoso after the MPC meeting stated that the committee’s decisions were centred on the current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations.
“Members were concerned about the persistent rise in the level of inflation and emphasised the committee’s commitment to reverse the trend as the balance of risk leaned towards rising inflation.

“The committee, however, acknowledged the trade-off between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in an environment of low and stable inflation,” he added.

Analysts at Cordros Research stated that before the MPC meeting, they noticed that the increase in yields in the T-bills market reduced interest in stock market, particularly among domestic institutional investors.

“Following the unexpected 400 basis points hike in the MPR by the MPC, we anticipate a further negative impact on the equities market performance in the short term. Indeed, the stock market closed with a 1.4mper cent decline today, likely due to negative sentiment from investors, as rising fixed-income yields typically reduce the appeal of equities.

 “Overall, the MPC’s hawkish stance is expected to further heighten risk-off sentiments in the local market, as domestic investors, who make up the majority of market participants (c.92.0per cent as of January 2024), may opt for safer assets amid rising fixed income yields.

“Consequently, we anticipate a prolonged bearish market trend driven by yield movements and the uninspiring corporate earnings reported thus far,” they said.