Stock Market Lost N3.6tn in April as Investors Switched to Treasury Bills

Kayode Tokede 

Investors in the stock market segment of the Nigerian Exchange Limited (NGX) lost about N3.6 trillion in April 2024 as the Central Bank of Nigeria (CBN) lured investors with attractive yields on its Nigerian Treasury Bills (NTBs).

Investors trading stocks had sustained profit-taking amid 2023 financial year dividend payout by some fundamental companies quoted on the Exchange.

However, NTB yield has been rising since the central bank started its rate hike in response to the high inflation rate. With inflation rate at 33.20 per cent as of March 2024, the central bank has increased its benchmark monetary policy rate to 24.75er cent.

In terms of investors’ value, THISDAY checks showed that the overall market capitalisation closed April 2024 at N55.55 trillion, dropping N3.6 trillion or 6.03per cent from N59.120 trillion it opened for trading

Consequently, the NGX All-Share Index closed April 2024 at 98,225.63 basis points, dropping 6.06per cent or 6,336 basis points from 104,562.06basis points it closed for trading in March 2024.

Finding by THISDAY showed that the NGX Banking Index, followed by NGX Industrial Index were the most affected sectors in April 2024.

Specifically, the NGX Banking Index closed April 2024 at 774 basis points, dropping 25.5 per cent from 1,029.63 basis points it opened for trading, while NGX Industrial Index closed March 2024 at 4,841.20 basis points, a decline of 15.4 per cent to close April 2024 at 4,686.98 basis points.

Commenting on the NGX Banking Index performance, the Managing Director of HighCap Securities Limited, David Adonri said, “after the announcement by CBN directing banks to recapitalise, the market started declining, but we cannot say for sure that that policy is behind the decline in the prices of banks’ stock since that announcement was made.

“I think the major factor should be the second announcement that restrained banks from paying out good dividends in line with their extraordinary income within the financial year.”

He added that another reason could be associated with the contractionary monetary policy of the central bank also, wherein the interest rate had been hiked significantly in the last two MPC meetings.

So, this, he stressed, caused a migration of financial assets away from stocks to debt.

Adonri, explained that the recapitalisation structure as directed by CBN was predicated on the flow of fresh capital to the banks, saying that, “the banks will have to raise fresh capital from all the sources where they can raise.

“But we are presuming that a lot of them will have to leave the capital market. They will come to the primary market to raise fresh capital.

“And judging by historical antecedents, that is likely to cause some price movement in the banking sector before the banks hit the market to float their public offerings.”

On merger and acquisition, he further said, “there is no need because banks are segregated into different segments. Some are regional banks, some are national banks, some are international banks. So, any bank that is unable to meet the minimum requirement for a segment will drop down to the lower segment instead of going to a forced merger or offering itself for acquisition.

“But banks have been given about two years to raise fresh capital. What will happen is that there will be a timetable in the capital market that will make them come one after the other so that the market will not be fatigued. If all of them are to swamp the market at a fair swoop.

“I believe that SEC will come up with a timetable that will give space for each of the listed banks to come to the market via a public offering so that the success rate will be very high.”

He added that the Nigerian stock market was undergoing correction, saying the correction was expected to continue while the emphasis starts shifting to the primary market and also the debt market.

He explained that “these are also part of the policy objectives of the monetary authority to stop the overheating of the equities market so that it does not develop into a bubble that would destroy the economy.”

Meanwhile, further checks revealed that the NGX Consumer Goods Index dropped to 1,546 basis points as of April 2024, representing 6.5 per cent from 1,610.80 basis points it closed in March 2024, while NGX Oil/Gas Index   closed April 2024 at 1,267.98 basis points, a decline of 2,64 per cent from 1,294.38 basis points it closed March 2024.

Considering the stock market performance in the first four months of 2024, investors’ return has appreciated by 31.36 per cent from 74,773.77 basis points when the market opened for trading basis points to 98,225.63 basis points as of April 30, 2024.           

At 31.36 per cent investors return, the Nigerian stock market is still one of best performing Exchanges in Africa amid double-digit inflation, insecurity, among others.

Also, the overall market added N14.64 trillion when the market capitalisation closed April 30, 2024, at N55.55 trillion from the N40.918 trillion the stock market opened for trading this year.

Responding to market performance in first four months of 2024, the Adnori stated that investors were trading in the stock market based on sentiment.