Amid High Interest Rate, Investors Staked N2.25tn in Stock Market in Five Months

Kayode Tokede

Despite rising inflation, high interest rate and attractive returns on government securities, foreign and domestic investors staked a whooping N2.25 trillion in the Nigerian equities market in five months of 2024.

This represents about 115 per cent increase over the N1.04 trillion recoded in the first five months of 2023.

With inflation reaching its highest peak this year, the Central Bank of Nigeria (CBN) has increased monetary rate to 26.25 per cent, leading to over 20 per cent yield on one-year Nigerian Treasury Bills (NTBs) and the Federal Government of Nigeria (FGN) Bonds.  

Recently, THISDAY exclusively reported N15.25 trillion overall gain in market capitalisation in the first five months of 2024 as fundamental companies recorded an unprecedented growth in stock prices. 

The N15.25 trillion market capitalisation growth is coming on the backdrop of rising insecurity, inflation, swing in CBN monetary policy rate, among other macroeconomic challenges and global uncertainty.

Nigeria’s inflation rate, according to the National Bureau of Statistics (NBS), currently stands at 33.95 per cent as of May 2024, driven by money supply, exchange rate, net exports, interest rates, fiscal factors, agro-climatic factor and real output.

The 33.95 per cent inflation rate in Nigeria makes it 17th straight month acceleration, the highest reading since March 1996.

However, the Nigerian Exchange Limited (NGX) report tagged, “Domestic & Foreign Portfolio Participation in Equity Trading,” revealed that domestic investors still dominated the stock market, transacting about N1.79 trillion from N945.02 billion in five months of 2023.

The report revealed that foreign investors staked about N458.29 billion in five months of 2024 as against N99.34 billion to underline the effect of foreign exchange reforms by this present administration of President Bola Tiinubu.

The NGX report revealed that out of the N2.25 trillion transactions, foreign investors’ contribution increased to 20.37 per cent in five months of 2024 from 9.51per cent in five months of 2023.

The report showed that domestic institutional investors’ contribution shrank to 79.63 per cent in five months of 2024 from 90.49 per cent reported by the Exchange in five months of 2023.

In terms of inflow, foreign investors ‘ stake reached N190.82 billion in five months of 2024, while outflow increased significantly to N267.47 billion in five months of 2024 from N50.04 billion reported by exchange in five months of 2023.

 Analysts said reforms by the Tinubu administration, “are good for the economy and will in the long run good for markets.”

Speaking, the Vice President, Highcap Securities, Mr. David Adnori stated that the foreign exchange policy of this present administration has restored confidence in the stock market with foreign investors’ massive participation.

Adnori stated that the emergence of Tinubu as president further energised the stock market, since market participants had confidence in his ability to rejig the economy and implement economy-friendly policies.

Adnori was also optimistic that the stock market might maintain its positive momentum in the second quarter of 2024, against the backdrop of banking sector recapitalisation that is expected to trigger investors buying rights issues from listed banks.

“We need foreign investors at the same time, we need local investors to dominate the stock market. The mixed exposure of our local market is creating room for liquidity to flow and price discovery which is what the stock market is all about,” he said.

 Analysts at Coronation Asset Management in a report titled, “Investment Opportunities from FX Liberalisation,” said foreign investors were still a significant factor in the Nigerian stock market in 2017; much less now, although recent data showed a net inflow of foreign investment into the stock market.

They noted that the monetary authorities were also able to engineer market interest rates above the rate of inflation; something to which investors usually respond positively

“This begs one question about the second half of 2023. Which way are interest rates going to move? A liberalised foreign exchange rate points to elevated interest rates in order to make it worthwhile holding money in naira. Fuel subsidy removal, effective May 31, 2023 suggests that cost pressures will push inflation upwards, which also argues for elevated interest rates.

“Against this, the All Progressives Congress (APC) manifesto proposed low interest rates to encourage economic growth. We do not know, at this stage, how the APC administration and the CBN will resolve this critical area of policy.

“On the bright side, the removal of fuel subsidies and the liberalisation of the naira foreign exchange rate are historic events, and will themselves straighten out much of the dysfunctional economic behaviour we have become accustomed to,” Coronation stated.

Analysts at Cordros Research said, “We expect domestic investors to continue to dominate the domestic equities market over the short-to-medium term, even as higher fixed-income yields may constrain buying activities.”