November 29, 2023

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‘Rising inflation, lingering cash crisis may depress equities in Q2’

Rising inflation, tensed sociopolitical developments, cash and fuel scarcity are factors expected to depress the equities market and propel migration to the fixed market in the current quarter (Q2), stockbrokers have said.

Market operators who gave predictions on stock market performance for the second quarter (Q2) at the weekend, said though the equities market showed remarkable resilience by closing on a positive note in the first quarter primarily due to impact of full year (2022) corporate results and distribution of dividend to shareholders, the Q2 may not go in the same pattern.

They, however, pointed out that investors’ reaction to Q2 corporate performance will reflect the negative socio-political and economic events that occurred in Q1, which would ultimately depress the market.

Recall that inflation soared to 21.82 per cent in January 2023 as the country struggled to grapple with persistent fuel and naira crises.
According to the National Bureau of Statistics, January’s inflation rate was 0.48 percentage points higher than the 21.34 per cent that was recorded in December 2022.

It stated that January’s inflation was driven by increases in the prices of food items such as, bread and cereal, potatoes, yam and tuber, vegetables, and meat, and rent. Inflation in urban areas rose to 22.55 per cent in the month under review, while inflation in rural areas hit 21.13 per cent.

Food inflation also rose to 24.32 per cent because of increases in prices of bread and cereals, oil and fat, potatoes, yam and other tubers, fish, vegetables, fruits, meat, and food products. This increase in inflation occurred despite the tightening monetary policies of the Central Bank of Nigeria (CBN).
Following the redesign of the national currency and the withdrawal of the old currency notes, there was also scarcity of cash and fuel running into months in the first quarter. The cash crisis forced many small businesses, which depend on cash transactions, to shut down while citizens were faced with difficulty accessing cash for their daily expenses.

Although the situation seems to have improved , the development has continued to slow down economic activities and it is currently taking a very heavy toll on the small businesses, rural dwellers and the entire agricultural sector.

Experts have stated that this would have a huge negative effect on the economy because these sectors are strategic constituents of the economy, considering their contributions to job creation, economic inclusion and diversification.

Despite the post-election incidents, the Nigerian Exchange Limited (NGX) returned 5.81 per cent for investors, consolidating gains made from the previous year, as the All-Share Index (ASI) rose from 51,251.06 points to 54,232.54 points.

Similarly, market capitalisation of listed companies also closed higher at N2.54 trillion despite election fear.

Furthermore, investors exchanged 557.3 million shares valued at N3.68 billion in 3,943 deals, compared to the previous day’s tally of 73.54 million worth N4.23 billion in 3,718 deals. In total, the market had done N265.48 billion in value from 18.04 billion shares in 232,632 deals.

But stockbrokers at the weekend, stated that the unfolding events surrounding the unfair and non-credible general election, coupled with cash crunch, might depress equities and force migration to debt instruments.

Specifically, Head, Equities, Planet Capital, Dr. Paul Uzum said many consumer and industrial goods companies will not perform well in Q2 due to the effect of the cashless policy that constrained sales in February and March.

According to him, the situation is also exacerbated by the money market rates that spiked to 14.7 per cent for one year treasury bills.

“These are not good signs for the equities market. Turnover is still very low compared to what it would have been if foreign investors were participating in the market actively, like they used to do some years back. Market performance would have been better if not for the disruptions caused by politics and cashless policy.”
Vice President of Highcap Securities, David Adonri said the Q2 of the year might not outperform the Q1 because the Q1 results that will hit the capital market in Q2 will reflect the negative socio-political and economic events that occurred in Q1.

“Investors’ reaction to Q2 corporate results and unfolding events surrounding the alleged unfair and non credible general election may depress equities and force migration to debt. Hopefully, from the end of the third quarter, equities may start to recover,” he said.

Guardian online


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