•Says windfall tax likely to affect companies’ 2024 FY performance
By Chinwendu Obienyi
The Federal Government of Nigeria (FGN) bonds accounted for 97% of the total bond market value recorded on the trading floor of the Nigerian Exchange Limited (NGX), data obtained from the Central Bank of Nigeria (CBN)’s recent third quarter (Q3) economic report shows.
This is even as the apex bank stated in its report that the introduction of windfall tax could significantly impact the 2024 full year performance of quoted companies on the exchange.
Activities in the Nigerian equities market had decelerated in the third quarter of 2024, signaling the response of the market to interest rate hike at the September 2024 MPC meeting.
According to the apex bank, the bearish performance of the capital market mirrored asset switching activities of investors from equities to fixed income securities to maximise the attractive yields.
The report revealed that aggregate market capitalisation declined by 1.3% to N102.92 trillion in the review period, compared with the N104.28 trillion recorded at end-June 2024.
It further stated that while a disaggregation of the equities component of the total aggregate capitalisation showed that the main board constituted 64.64%, a disaggregation of the bonds component of the total aggregate capitalisation revealed that federal government bonds constituted the highest share in Q3 2024.
It said, “A disaggregation of the equities component of the total aggregate capitalisation showed that the main board constituted 64.64% of the total, premium board accounted for 35.20%. This was followed by growth board at 0.11%, Real Estate Investment Trust & Close End Fund (0.05%), and AseM (0.01%).”
Also, a disaggregation of the bonds component of the total aggregate capitalisation revealed that federal government bonds constituted the highest share of 96.74%, while corporate bonds/debentures and government bonds (state and local) accounted for the balance of 3.26% of total”.
This indicates a strong reliance on government securities in the Nigerian financial market, showcasing the government’s role as a major player in debt issuance. This dominance might reflect investors’ preference for lower-risk securities compared to corporate bonds, given the country’s economic conditions.
The report also revealed that equities, debt and the exchange traded funds (ETF) components depreciated by 0.1, 2.9, and 19.8% respectively, to close at N56.64 trillion, N46.25 trillion, and N32.43 billion compared with the N56.60 trillion, N47.65 trillion and N27.08 billion recorded in the preceding quarter.
Notably, the equities component sustained its dominance constituting 55.04% of the aggregate market capitalisation, while debt and ETF components constituted the balance of 44.96%.
On the other hand, the All-Share Index (ASI) depreciated by 1.5% to 98,558.79 index points, compared with the 100,057.49 index points recorded in the preceding quarter.
The development was largely in response to the higher interest rate environment which tilted investors’ interest from the equities market to fixed-income securities, the CBN said.
It revealed that trading activities on the Exchange increased in the review quarter as the value of traded securities rose by 38.90% to N0.73 trillion, compared with the N0.53 trillion recorded in the preceding quarter.
Similarly, the volume of traded securities increased by 41.95% to 39.74 billion shares, compared with 27.99 billion shares recorded in the previous quarter. Also, the total number of deals traded increased by 25.72% to 606,952.00 deals, relative to the level in the preceding quarter.
While the fixed-income segment, led by FGN Bonds, remains a stronghold for investor confidence, the equities market faces potential headwinds in maintaining momentum unless macroeconomic conditions improve, or the burden of the windfall tax is mitigated.