Income

Low fixed income yields push stock market up N6.27 trillion in five months

Kayode Tokede

The Nigerian Exchange Limited (NGX) appreciated N6.27 trillion in the first five months of 2022 amid positive indicators that included weak yield in fixed securities, rising global oil prices and the impressive profits of listed companies.

Specifically, the overall market capitalization, an indicator used to track the total value of the value of all companies on the NGX, gained 6.27 trillion naira or 28.12% to close on May 31, 2022 at 28.568 trillion naira. , higher than 22.297 trillion naira. it closed on the last trading day of 2021.

Market capitalization in April had added 1.81 trillion naira to close at 28.568 trillion naira from 26.76 trillion naira open for trading.

As a result, the NGX All-Share Index, an indicator used to track general market movement of all stocks listed on NGX, including those listed on the Growth Chart, regardless of capitalization, opened 2022 at 42 716.44 basis points to close May 31, 2022 at 52,990.28 basis points, an increase of 24.05%.

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

THISDAY had reported that the NGX market capitalization gained N3.02 trillion naira in the first quarter of the year amid the flurry of impressive leading indicator earnings and positive corporate actions.

The market cap had also gained 3.015 trillion naira to close on March 31, 2022 at 25.312 trillion naira from 22.297 trillion naira when it opened for trading on January 4, 2020.

In contrast, the NGX ASI index rose 9.95% to close at 46,965.48 basis points in the first three months of the year.

The main drivers of the Nigerian stock market in the first five months of 2022 were the performance of listed oil and gas companies, industrial banks and consumer goods.

For example, the NGX Oil/Gas index in five months gained 58.7% to close May 331, 2022, at 547.57 basis points from 345.01 basis points, while the NGX commodity index consumption increased by 10.6% to close May 2022, at 651.73 basis points. of 589.28 basis points at the opening of the stock exchange during the year under review.

Additionally, the NGX industrial index rose 9.26% in five months from 2,194.24 basis points to 2,008.30 basis points, while the NGX banking index edged up 4, 8% to 425.71 basis points, from 406.07 basis points.

Equity price growth was strongly bullish, with all indicators closing in the green between January and May 2022.

Capital market analysts attributed NGX’s growth to weak performance in the fixed-income market, steadily rising global oil prices and impressive corporate earnings post-COVID-19.

The National Bureau of Statistics (NBS) revealed last week in its first quarter 2022 report that the Nigerian economy grew by 3.1% year-on-year (y/y) in real terms, this which was overall a positive surprise as growth prints exceeded consensus expectations.

The expansion in the first quarter of 2022 occurred despite unprecedented developments in the global economic environment, including rising inflationary pressures, rising import costs (due to global supply chain disruption ) and geopolitical uncertainties.

To the Chairman of the Association of Capital Market Academics in Nigeria (ACMAN), Professor Uche Uwaleke, investors reacted following a high international price of crude oil which reduced the risk of external shocks, pointing out that the insignificant impact of the Russian-Ukrainian war on the Nigerian economy played a vital role in the growth of the stock market in the five months of 2022.

He said other factors included: “Relatively low interest rates in the fixed income market. However, this may soon reverse 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 by the SEC has helped build confidence.”

He added that “perhaps the most powerful driver has been the improved performance of many listed companies. Thus, many investors went on a bargain hunt for undervalued stocks, thereby driving up stock prices.

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

He added that “the increased participation of local investors in the market and the reinvestment of 2021 annual dividends by investors who have recently received such dividends from listed companies.

“Excess liquidity makes it virtually difficult for investors in the fixed income space to factor the current high rate of inflation into the returns that can be obtained in the market.

“Negative real yield in the fixed income market had forced some of these investors to embrace the equity market as an alternative investment class, prior to CBN’s recent 13% rise in MPR per MPC. Even with the rising MPR, we still have traditional investors who are interested in the stock market, which is known to easily adjust to inflation from time to time.The stock market is an inflation-adjusting market .

“Availability of derivative instruments which now constitute an ideal means of hedging against volatility and other risks in the equity market. This is able to attract liquidity to the stock market. More institutional investors, particularly pension funds and asset management firms, are likely to embrace the equity market as a result, and we’re starting to see that in the market.

Additionally, he said the sustainability of the current trend depends on what happens in the fixed income market.

“Yields are rising moderately at the moment, with potential appeal to investors in the fixed income space, although the market is still largely facing excess liquidity.

“In my view, it is unlikely that the government will accept a further increase in the cost of borrowed capital, given the unsustainable and enormous cost of debt servicing for the government, especially now that the MPR is at 13%. I expect these two important segments of the Nigerian capital market to be in balance at some point.

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

He explained that “there has been a significant improvement in profits for listed companies in key sectors such as banking and non-financial sectors such as food and beverages. Take for example the share prices of Nigerian Breweries Plc and Guinness Nigeria which have appreciated significantly this year. The quarterly performance of these companies attracted investors and we saw a surge in their share prices during the months under review.

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

Analyst at PAC Holdings, Mr Wole Adeyeye attributed the stock market’s growth to investors’ expectation of dividend payouts amid impressive profits from listed companies.

He said: “A lot of investors have positioned themselves for the payment of dividends and that has improved stock prices.”

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

Speaking from a different perspective, Nigerian Capital Market Dean Mr. Rasheed Yusuf said that the increase in the global price of oil has played a vital role in the growth of the capital market over the past few years. five months of 2022.

According to him, “the current world price of oil which is above 100 dollars a barrel has translated into more income for the federal government and more expenses. Since there is more revenue for the government, there will certainly be more spending and more business opportunities for individuals and NGX-listed companies.

“Everyone thought Nigeria would be in economic crisis, but with oil revenues above $100 a barrel during the Ukraine-Russia crisis, the government was able to manage the subsidy.

“The global price of oil has breathed new life into companies in the country and investors expect these companies to make good profits and this has helped their stocks grow.

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