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Thursday, June 8, 2023

Local Investors Buoy Stock Market Recovery

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Local investors buying stocks due to a low interest rate environment is responsible for the recent rally in the equity market and corporate results so far are impressive even during an economic down turn.

The Nigerian Stock Exchange (NSE) All Share Index (ASI) has lost (YTD) -6.15 percent since the start of the year, according to data from Bloomberg Terminal.

That’s a marked improvement compared with the negative 20.53 percent YTD return in March, a period that was concomitant to a sudden crash in oil price and  coronavirus pandemic that ravaged economies across the globe and induced sell-offs by investors who had piled into safe haven assets.

The uptrend in the equities market was due to the lower yield environment which was supported by increased local currency liquidity.

Interestingly, the Nigerian stock market jumped 10.71 percent in January, as investors took the bull by the horn and launched a sector demand for stocks.

In order to force lenders to extend credit to the real sector of the economy, the central bank prohibited individual and local corporate from its Open Market Operations (OMO), which sent the average yields Treasury bill crashing to between 3.57 percent and 2.57 percent.

The yield on Nigeria’s government bond due 2026 fell to 6.7 percent Friday, compared with more than 14 percent a year ago.

Wary of a mix of domestic and external threat, foreign investors are dumping shares due to currency volatility and lack of policy reforms as they are unable to repatriate their funds out of the country.

By and large, there remains bleak outlook for the economy on the back of the Covid-19 headwinds and weak consumer sentiments as government lacks the fiscal buffers to ride out of the current crisis.

Despite series of economic stimulus announced by the authorities to ease the impact of the virus on business and household, domestic economic growth in the first quarter (Q1-2020) slowed to 1.87 percent.

The International Monetary Fund (IMF) has announced that the Nigerian economy would witness a deeper contraction of 5.4 percent and not the 3.4 percent it projected in April 2020.

The Federal Government has said that there is likelihood for the economy to slip into another recession within four years as they expect a negative GDP figure.

Unemployment rate in the country has surged to the highest in a decade, which underscores a protracted economic downturn made worst by the coronavirus pandemic as over 50 percent of population of 200 million live on less than $1.98 a day.

The jobless rate rose to 27.10 percent, according to a National Bureau of Statistics report published on its website on Friday. That compares with 23.10 percent in the third quarter of 2018, which was the last period the agency released labor-force statistics.

Despite the gloomy macroeconomic outlook, financial performances of bellwether companies have been impressive so far, beating analysts’ expectations.

First Bank Holdings Plc, one of the largest lenders in the country, saw Half-Year net income increase to N35.64 billion from N28.78 billion the previous year.

First City Monument (FCMB) Group Plc, a small and mid-sized Bank, saw net income rise by a 28.33 percent to N9.70 billion as at June 2020.

The dominant cement makers also recorded a 16.0 percent increase in cumulative income to N184 billion as at June 2020.

The growth at the bottom line was driven by double digit growth in the profit of BUA Cement and Lafarge Africa amid slow construction activities as the lockdown policies by government to curb the spread of the virus means sites were shuttered.

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