Nigeria’s positive Q4 GDP not enough for stocks
…as investors lose over N1.05trn since start Feb
Nigerian stocks are almost unrecognisable today from where they were at the start of the year, and not even a return to the growth of Africa’s biggest economy is enough to lift stocks.
In what came as a surprise, Nigeria’s economy exited recession in the fourth quarter of 2020, growing 0.11 percent, according to data released by the National Bureau of Statistics last week Thursday – after recording two-quarters of negative growth the same year. That, alongside an impressive full- year financial performance of listed companies, was expected to increase investors’ interest in stocks.
But that didn’t come in handy after the equities market, which put over 50 percent returns in the pockets of investors last year to become the best performer globally, continued its bearish run for the fifth trading- day through Monday.
The All- Share Index which serves as a gauge to broad market activities fell 0.08 percent to 40,154.09 points at the close of trading Monday, driven by the decline in bellwether stocks particularly WAPCO (- 8%), Fidelity(- 3%), and United Capital (5%).
“Equity market reacts to the interest rate environment,” said Johnson Chukwu, managing director/ CEO, Cowry Asset Management Limited.
“Whenever interest rate goes up, investors will underweight their portfolios in equities and overweight them in fixed income instruments,” Chukwu added.
In 2020, the interest rate environment was largely repressed following the conscious efforts of the Central Bank to boost real sector growth, thereby restricting local investors from investing in its shortterm OMO bills, pushing excess liquidity into fixed-income instruments, crashing yields.
This year, rates are beginning to reverse and investors are consciously exiting variable assets because of the likelihood that interest rates will go up. “And as interest rates continue to go up, we will see a lot more people move out from variable income assets which equities represent,” Chukwu said.
Since the start of February 2021, Nigerian equities have continued to perform poorly, no thanks to the upward reversal in interest rates that is making investors rebalance their portfolios into equities.
So far, of the 16 trading days in the month of February, the market has lost out in 14, gaining only 2, according to market data tracked by Businessday.
Investors have seen over N1.05 trillion of their wealth wiped out in the last 15 trading days, after the market capitalisation of listed stocks fell to N21.009 trillion on Monday, February 22, from N22.059 trillion recorded at the end of trading in January.
Meanwhile, investors have continued to find comfort in fixed income instruments at the expense of equities, as rates on bonds, OMO and T- Bills trend higher.
Yields on benchmark Federal Government of Nigeria (FGN) bonds rose to the highest levels in eight months at a primary auction conducted last week (Wednesday) as investors sought higher rates amid growing inflation which climbed to nearly threeyear high at 16.47 percent.
The Debt Management Office (DMO) offered N150 billion in 10-year, 15-year and 25-year bonds, which were allotted at marginal rates of 10.25 percent, 11.25 percent and 11.80 percent, respectively.
That compares to similar tenor bonds sold a month ago ( in January) allotted at the marginal rates of 7.98 percent, 8.74 percent and 8.95 percent, respectively.
Rates on one-year treasury bills in the last primary market auction, February 10, also climbed 200 basis points to 4 percent from a previous stop rate of 2 percent.