Nigerian Stock Trades Tumble to Four-Month Low Amid Market Uncertainties – August witnessed a significant dip in the stock trading volume recorded by the Nigerian Exchange Limited (NGX), plummeting by 62.65% to N262.56 billion – the lowest level observed in four months, according to the latest official data.
This sharp decline from July’s N702.98 billion in total transactions marks a reversal from the previous upward trajectory initiated in May upon President Bola Tinubu taking office. The president’s reform efforts, including the announcement of petrol subsidy removal and the devaluation of the naira in mid-June, initially sparked a considerable rally in the market.
However, the August downturn reflects the first dip in trading volume since this bullish period. Foreign transactions during August decreased to N37.16 billion from July’s N40.54 billion, with domestic trades also experiencing a decline from N662.44 billion to N225.40 billion.
Despite foreign inflow seeing an uptick to N13.79 billion from N9.45 billion, the foreign outflow dropped to N23.37 billion from July’s N31.09 billion. The NGX data further revealed that retail transactions experienced a 57.76% reduction to N97.13 billion from N229.95 billion, while institutional investors’ share plummeted by 70.34% to N128.27 billion from N432.49 billion.
Temitope Omosuyi, the investment strategy manager at Afrinvest Limited, attributed August’s transaction decline to various factors including overpricing in the market, disappointing performance reports from non-financial institutions, and a spike in interest rates. “Investors may be reassessing the market dynamics, anticipating a possible price decline before re-engaging,” Omosuyi explained.
Furthermore, the market began August on shaky ground as investors adjusted to half-year financial reports released by various companies, many of which reported underwhelming earnings. Although financial institutions posted attractive reports, other sectors failed to meet expectations, adding to the market’s instability.
In late July, the Central Bank raised its benchmark interest rate for the eighth consecutive month, with a 25 basis points increase to 18.75%. This move, along with rising fixed income rates and bond yields (which jumped from 12% to 14% between July and August), offered retail and domestic investors alternative value in the fixed income space, as the stock market appeared overpriced.
Akintoye Adelakun, a Lagos-based portfolio manager, highlighted mixed sentiments among investors as another reason for the diminished trading volume. “While some investors believe the market is fully priced, others see existing opportunities. However, the ongoing foreign exchange challenges continue to deter foreign investment,” Adelakun noted.
As of now, the 2023 transaction data indicates that the total domestic transactions amount to approximately N2.194 trillion, with foreign transactions rounding off at about N222.78 billion. With a market characterised by overpricing and mixed financial performance reports, investors are treading cautiously, resulting in decreased trading volumes and an atmosphere of uncertainty in Nigeria’s stock market.