The equities market defied the persistent hike in interest rate by the Central Bank of Nigeria, CBN, at the end of trading in May with investors recording a marginal gain of N619 billion.
This is a sharp contrast from the previous month when the market declined by 6.16 percent after losing more than N3.5 trillion in value following a 200 basis points increase in the monetary policy rate, MPR, to 24.75 percent by the central bank. This had resulted in migration of assets to the fixed income market.
However, a combination of impressive earning reports for the first quarter to March 2024, Q1’24, and bits of bargain hunting activity kept the market in the positive region as investors managed to eke out marginal 1.1 percent returns despite the 150 basis points increase in interest rate to 26.25 percent during the month.
Notably, the Nigerian Exchange Limited, NGX, major indicator – the All Share Index, ASI, inched up to 99,300.38 points at the end of April from 98,225.63 points it started the month with, indicating a 1.1 percent increase.
Similarly, the market capitalization, which represents the value of the listed stocks, rose to N56.172 trillion from N55 553 trillion at the beginning of the month, also representing a 1.1 percent increase.
Investors in the banking and oil and gas sectors emerged the most beneficiaries of the upward trajectory as both indices moved higher by 2.98 percent and 2.1 percent respectively.
Meanwhile, investment analysts have said that the market would be mostly bearish in June owing to the elevated interest rate and increased activity in the primary market due to the banking sector recapitlisation.
In his comment, Victor Chiazor, Head, Research at FSL Securities, said: “The equities market became bearish since the hawkish stance of the CBN’s monetary policy committee which saw MPR increased by 750 basis points in four months.
“However, the market is not expected to be on a free fall as there are expected to be bargain traders in-between this bearish season with a few upward swings in the process especially given some impressive Q1’24 results reported by some banks.
“These bargain traders are what we believe to be responsible for the gains reported in the equities market for May 2024 but we are of the view that the market would remain relatively bearish in the month of June especially as interest rate environment remains elevated.”
Also alluding to the positive impact of Q1 earnings, David Adonri, Vice Chairman, Highcap Securities, said: “The prolonged rally in equities came to a halt in April because the full year results and dividend payouts could not justify it.
“Market correction continued into May 2024 but recovery in the banking sector and the unexpected big dividend payout by Presco Plc reversed the decline.
