Equities trading on the Nigerian Exchange Limited (NGX) closed on a negative trajectory in July 2024, reflecting a decline in investor confidence toward listed companies.
This waning confidence was evident in significant changes in purchasing behaviour, leading the All-Share Index to close at 97,774.22 index points, marking a decrease of 2.28 per cent for the month.
Several policy announcements from the Central Bank of Nigeria (CBN) influenced the sharp drop in the index. Notably, the CBN announced a new recapitalization plan for commercial banks, aiming to raise an estimated N4tn in fresh capital over the next two years.
The downturn was largely attributed to the higher interest rate environment, which has driven investors towards fixed-income securities, putting downward pressure on market performance.
Consequently, available statistics to THE WHISTLER showed that the All-Share Index, which is the broad index that measures the performance of Nigerian stocks, opened the trading month at 100,057.49 index points at the beginning of trading on July 1, 2024, and closed at 97,774.22 points at the end the month on July 31, 2024, declining 2,283.27 basis points or 2.28 per cent.
Further analysis revealed that activities on the Nigerian Exchange Limited (NGX) which opened the trading of the month at N56.6tn in market capitalization at the beginning of trading, closed the month at N55.51tn, hence has earned a month-to-date gain of about N1.088tn.
Financial analysts are forecasting a potential pullback in the stock market for the second half of 2024, following a peak observed in the first half of the year.
The outlook was discussed during the Arthur Steven Asset Management Limited (ASAM) Quarterly Webinar, titled “The Economy & Capital Market Outlook for Second Half 2024.”
The President of the Association of Capital Market Academics of Nigeria (ACMAN), Prof. Uche Uwaleke indicated that a stock market correction could be anticipated in the latter half of 2024.
He attributed his expectation to the market having reached a peak in the first quarter of 2024.
“Based on historical trends, a market correction is likely in the second half of 2024 following the peak observed in Q1 2024,” Uwaleke noted.
Uwaleke identified several key factors that are expected to influence the performance of the Nigerian capital market in the latter half of the year. Central to this is the Central Bank of Nigeria’s (CBN) monetary policy stance.
Uwaleke highlighted that aggressive tightening measures, which result in higher interest rates, make fixed-income securities more appealing while reducing credit availability to other sectors of the economy.
“Given that the effects of monetary policy often lag, the full impact of the rate hikes is expected to be felt in the second half of 2024,” he explained.
Additionally, Uwaleke pointed out that inflation is likely to remain high due to the removal of fuel subsidies and the devaluation of the naira.
While the National Bureau of Statistics (NBS) forecasts a moderation in inflation to below 30 per cent in 2024, this rate still exceeds the CBN’s target band of 21.4 per cent.
He emphasized that persistent inflationary pressures contribute to rising production costs, reduced profitability, and diminished investor confidence.
“Elevated inflation not only raises production costs but also erodes profitability and investor confidence,” Uwaleke added.
The Managing Director of Arthur Steven Asset Management Limited and former President of the Chartered Institute of Stockbrokers (CIS),
Mr. Olatunde Amolegbe, noted that adjustments to the Monetary Policy Rate (MPR) for inflation have indirectly affected the equities market, increasing participation in fixed-income securities.
He advised investors to consider allocating more resources to higher-risk assets with positive earnings, such as banking stocks and companies with foreign exchange earnings.
All Share Index Drops By 2.28% Amid Economic Challenges is first published on The Whistler Newspaper