For the week ending August 25, 2023, FMDQ Securities Exchange reported a total turnover in its foreign exchange (FX) spot and derivatives market sector of $417.9 million.
The amount is down from the $620.1 million recorded for the week ending August 18, 2023, by 32.61 percent ($202.2 million).
The decline occurred amid a lingering market crisis, the shaky performance of the naira against other currencies, and increased illiquidity across many windows.
The renewed crisis persisted through the weekend, with the naira trading at about N905/$ on Saturday in the black market. Dealers said the anticipated funding of the bureau de change (BDC) operators by the Central Bank of Nigeria (CBN) might lessen the strain in the market. They were waiting for large dealers to release new rates for the week.
The CBN anticipates that the operators would sell at a spread of -2.5% to +2.5% of the previous day’s window weighted average rate on the Nigerian Foreign Exchange Market. How the apex bank would obtain foreign exchange to support the registered dealers, who numbered 5,689 as of December 2021, is a matter of debate.
While the apex bank stays mum over the funding strategy, regulator funding of the dealers’ activities will be a significant drain. The CBN will require $56.9 million per week to support BDC operators if the financing allotment to each operator is maintained at $10,000 per week, as it was before the funding was halted two years ago. Low FX profits and the activities of unofficial remittance routes, among other things, have crippled the bank.
J.P. Morgan recently estimated the nation’s net external reserves as of the end of last year at $3.7 billion, a far cry from the average $33 billion stated by the CBN in recent weeks.
However, during a televised interview, Hassan Mahmud, the Director of the CBN’s Monetary Policy Department, disputed the American investment bank’s assertion, saying: “That is not the first time we have seen persons and institutions reeling out data. They must have a reason for doing that, whether it be to manipulate the market or deceive the public.
FMDQ reports that despite a 555.77% ($4.89 million) gain in FX futures turnover, the week-over-week (WoW) decline in overall turnover was driven by a 33.4% ($207.09 million) decline in FX Spot turnover.
FMDQ said that there was a persistent lack of activity in both the Exchange Traded FX Futures and Naira-Settled OTC FX Futures markets, and claimed that the WoW rise in Forex derivatives turnover was exclusively driven by the 555.68% ($4.89 million) increase in FX Forwards turnover.
Additionally, the overall value of transactions in the FX Spot market for the week ending August 25, 2023, was $412.13 million, a drop of 33.4% ($207.09 million) from the value of transactions conducted in the week ending August 18, 2023 ($619.22 million).
It also stated that no deals were conducted in the existent Naira-Settled OTC FX Futures markets or Exchange-Traded FX Futures for the week ending August 25, 2023.
Additionally, the average Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate was $/772.68, down from $/772.14 in the week ending August 18, 2023, signifying a 0.07 percent ($0.54) depreciation of the Naira against the dollar.
On the floor of the Nigerian Exchange Limited (NGX), investors transacted 1.8 billion shares worth N29.3 billion in 31,163 transactions, up from 1.7 billion shares worth N29.4 billion transacted in 29,477 transactions the week prior.
With 936.7 million shares worth N10.1 billion moved in 12,886 deals, the financial services sector led the activity chart (measured by volume), accounting for 51.68 percent of the total stock turnover.
The next largest industry was conglomerates, with 461.5 million units sold for N2.3 billion in 3,451 transactions. With a turnover of 127.3 million shares worth N5 billion in 5,792 deals, the consumer goods sector came in third.
Transnational Corporation Plc, Fidelity Bank Plc, and Access Holdings Plc were the top three stocks traded, accounting for 693.5 million shares worth N5 billion in 5,450 transactions, or 38.2% of the total equity turnover.
On the price movement chart, the market recovered from last week’s losses, and then BUA foods (+7.9%), Dangote Sugar Refinery (+35.7%), and Transcorp (+39.4%) saw a surge in investor interest.
As a result, the market capitalization and all-share index both increased by 1.3% to end the week at 65,558.91 and N35.881 trillion, respectively.
Similar to this, all other indices also reached higher closing levels with the exception of the NGX CG, NGX Premium, NGX Banking, NGX AFR. Bank Value, NGX MERI Value, NGX Oil and Gas, NGX Industrial Goods, and NGX Growth indices, which declined by 1.63 percent, 0.96 percent, 3.57 percent, 1.82 percent, 0.71 percent, 1.69 percent, 0.01 percent, and 1.74 percent, respectively.
With the new development, the gains for the month and the year are now +0.6% and +26.3%, respectively.
In response to the market’s performance, analysts at Cordros Capital stated: “Going forward, we expect developments in the macroeconomic environment and the movement of yields in the fixed-income market to have an impact on investors’ attitudes.
As the negative economic environment continues to be a big headwind for corporate profitability, “overall, we reiterate the need for positioning in only fundamentally sound stocks.”
Futureview analysts predicted that bullish momentum would continue into the following week. We advise investors to put their money into high-quality stocks with solid fundamentals.
In comparison to the previous week, which saw a total of 30,336 units worth N2 million moved in 69 deals, 11,914 units of Exchange moved Products (ETPs) worth N3.98 million were traded in 72 deals.
Additionally, 103,716 bonds worth N107.3 million were exchanged in 30 trades as opposed to 292,995 bonds worth N294.9 million that were registered in 48 deals.
