With a N4.15 trillion naira gain and despite the severe volatility witnessed by global markets in the first nine months of 2022, the The stock market of the Nigerian Exchange Limited (NGX) is undoubtedly a ray of sunshine. Opening in 2022 at N22.297 trillion as market capitalisation, and gaining N4.15 trillion, which is approximately 18.63 per cent to close at N26.451 trillion as of September 30, 2022, is truly a commendable feat. The NGX All-Share Index is not left out as it appreciated by 14.8 percent year-to-date (YtD) to 49,024.16 basis points from 42,716.44 basis points the stock market opened in 2022 for trading.
In the global stock markets, the NASDAQ Composite Index went down by -20.95 percent YtD, while the United Kingdom FTSE 100 – London Stock Exchange also went down by -6.44 YtD performance. Other notable stock exchanges which saw a decline in performance include the CSI 300 Shanghai Shenzhen -16.91 percent in YtD performance and LuxX Luxembourg Stock Exchange Index -25.64 in YtD outcome.
However, investors in the Nigerian stock market have witnessed double-digit inflation, scarcity of foreign exchange, uncertainty in global economies, and of course, a hike in the Monetary Policy Rate (MPR) to 15.5 percent in the first nine months of 2022. They reacted to the CBN’s hike in MPR, which led to the aggressive movement of investors to the fixed income market that comes with low-risk investment and modest yield. For instance, the stock market in September was down by approximately 1.6 percent month-on-month to N26.451 trillion, from the N26.88 trillion it opened for trading; while the NGX ASI was down by approximately 1.63 percent to 49,024.16 basis points from the 49,836.51 basis points it opened for trading.
The CEO of Wyoming Capital and Partners, Tajudeen Olayinka said the decline in market performance in September is as a result of prolonged repricing of securities across markets and instruments by investors. The Head, Retail Investment, Chapel Hill Denham, Mr. Ayodeji Ebo, stated that the decline was due to the continued rise in fixed income rates due to the persistent hike in MPR. According to him, “investors prefer to keep funds in dollars due to the persistent exchange rate depreciation.”
Analyst at PAC Holdings, Mr. Wole Adeyeye also said, “Some investors migrated from stock market to fixed-income market in a move to take advantage of high yields, which was triggered by the recent hike in the policy rate. Also, foreign investors avoided the Nigerian stock market due to the upcoming general elections, weak local currency and insecurity in the country.”
Meanwhile the Vice President, Highcap Securities Limited, Mr, David Adonri said the stock market started declining in performance when the Monetary Policy Committee (MPC) of CBN increased the interest rate. He noted that other macro-economic indicators such as inflation rate, and scarcity of foreign exchange have also diminished demand for stocks as investors moved to fixed income markets.