The Nigerian stock market has been in a bear market since the beginning of April 2024. During that time, the market capitalization has dropped by N3.63 trillion and the All-Share Index (ASI) has declined by 6.16%.
The Nigerian Exchange Limited (NGX) closed on April 24, 2024, with an ASI of 98,121.3 points, compared to the 104,562.06 points at the market’s opening on April 1. The NGX ended April 24 with a market value of N55.49 trillion, down from N59.12 trillion at the beginning of the month.
Nonetheless, the market’s outstanding gains in the first quarter (Q1) of 2024 have more than made up for the enormous loss suffered by the NGX this month. As of April 24, 2024, the NGX has returned 31.2% so far this year.
Since the announcement of the recapitalization operation, the bearish run in banking stocks has been a major contributor to the market’s gloomy run.
FBN Holdings has lost 44.4% since the beginning of the month, Access Holdings has lost 34.5%, GTCO has lost 31.4%, and Sterling Holdco has lost 21.7%. Except for Ecobank Transnational, every bank listed on the NGX reported significant losses in April. As an illustration, UBA has decreased by 18.9%, Stanbic has decreased by 19.6%, and Zenith Bank has decreased by 17.8%.
An expert in a previous article by The News Chronicles linked shareholder dilution from capital increases to adverse views around banking equities.
He added, “In the short term, there will be a huge dilution of holdings. The dilutive effect has not been well received by the market.”
But with banking stocks continuing to fall, questions have been raised over these banks’ capacity to obtain the necessary capital in the NGX. Currently, Nigerian banks are resorting to the NGX to raise the approximately N3.9 trillion necessary to meet the new minimum capital requirements.
Given that the Central Bank of Nigeria (CBN) is also releasing NT bills in the primary market at rates as high as 21%, it is more likely that investor sentiment will lean toward less hazardous government securities.
Benchmark NT bills were selling at rates as high as 23.87% and 28.00% on the MDQ Securities Exchange secondary market as of April 24, 2024, which is one of the highest yields on T-bills accessible worldwide.
This, according to some experts, is a major factor in the NGX’s downward trajectory.
Oluwaseun Magreola, STL Asset Management Limited’s Head of Investment Management, claims that “We typically witness a negative turnout for the equity markets once rates rise and investors can obtain risk-free returns in the fixed income market that exceed 15%. This is because investors would typically liquidate their equity holdings to pursue risk-free returns in the fixed income market.”
In addition to banking companies, a few blue-chip stocks have also contributed to the recent downward trend in the market. For instance, this month has seen losses for MTN Nigeria of 13.1%, Dangote Cement of 4.4%, and Transcorp Hotels of 10.2%.
