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By Chinwendu Obienyi
Bank stocks on the Nigerian Exchange Limited (NGX) are heading for a 7-year high after hitting +62.53 per cent year-to-date (YTD) at the end of trading on Monday.
This is coming after President Bola Tinubu rolled out foreign currency and economic reforms in its bid to ensure investors and foreign businesses repatriate their hard earned dividends and profits back to their country.
Owing to policy somersaults from previous administrations, inflation, foreign investors exit as well as FX crisis reigned supreme for years. Furthermore, investors remained cautious especially as they are yet to recover fully from the 2008 market crash.
However, the reforms have seen the NGX All Share Index (ASI) approaching levels last seen in 2008. Banks have emerged as the biggest winners, with an index of shares soaring by 23 per cent in June – the last seen in 2018. But, other quoted companies (most especially consumer goods and industrial goods sector) have not been so lucky as a look at their financials reveal that they have been struggling with the rising cost of fuel which has tripled in the past month, resulting in pressures in the transportation and manufacturing sector.
On the other hand, the abolishment of FX windows by the Central Bank of Nigeria (CBN) has led to price appreciation as well as pent-up demand for stocks like AccessCorp, Fidelity Bank, Stanbic, Sterling Holdings Plc, UBA and Unity Bank Plc. So far, the stock market gains have been largely driven by local investors looking to protect their savings against rising inflation.
At the close of trading yesterday, Nigeria’s equities market strengthened its journey into the green zone on Monday by 0.21 per cent to close at 65,336.71 points as the record positive sentiment sustained its dominance on the nation’s bourse. Also market capitalization closed at N35.555 trillion from N35.479 trillion as investors gained N76 billion.
Data obtained from the NGX’s website showed that financial service giants such as Sterling Holdings, FCMB and Fidelity Bank drove the activity chart in the market.
For instance, Sterling Holdings traded shares worth 55.14 million shares valued at N19.72 million. FCMB sold 28.24 million shares worth N17.38 million while Fidelity Bank Plc transacted 18.84 million shares valued at N15.08 million.
Despite the hike in interest rate last month, there are speculations from some analysts that the reforms may drive huge appetite for stocks while others maintain that investors will position themselves in bank stocks ahead of the expected return of foreign portfolio investors, who will want to key in for the benefits.
Cordros Research in their market outlook for the week, said, “We believe earnings from the Tier-1 banks in the coming week(s) will support positive sentiments on the bourse, especially given the anticipation of interim dividends.
In the medium term, we expect investors’ sentiments to be influenced by developments in the macroeconomic landscape and the movement of yields in the fixed-income market. Overall, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings”.
