THE Nigerian stock market recorded a bullish performance in the first half of the year as investors gained over N15 trillion despite the Central Bank of Nigeria (CBN) rate hike that discouraged investment in the stock market.

The CBN has raised the benchmark interest rate by 750 basis points to 26.25 per cent from 18.75 per cent within the first half of the year to bring down inflation. However, the apex bank’s orthodox method has yet to yield the expected result.

According to market analysts, an interest rate hike discourages investment in the stock market and pushes investors to invest in the fixed-income market including in bonds and treasury bills.

Checks by The ICIR show that the stock market performance, in the first half of 2024,saw investors gain approximately N15.68 trillion, representing the highest gains recorded in the history of the Nigerian stock market.

The market capitalisation, which represents the total value of companies listed on the Nigerian Exchange Limited (NGX), rose to N56.60 trillion as of the last trading day in June from N40.92 trillion when the market opened for trading in January this year.

Also, the All-Share Index (ASI) crossed the 100,000 mark to settle at 100,057.49 basis points at June end, from 74,773.77 points it opened in January.

On sectoral performance, except for the banking index which closed in the red, all other indices closed in the green.

Notable challenges in the market

Although the stock market is expected to remain bullish in the second half of the year on account of banks’ capital raising, however, there are worries that the market is still burdened with increasing concerns over market manipulation, insider dealings, unclaimed dividends, regulatory failures, and interest rate hike that might dampen investor appetite towards stock.

There are even more worries that the improvement in the market generally has not necessarily translated into an improved economy for the country.

Last year investors in the stock market gained N13 trillion, The ICIR reported.

“This is because the government has failed to rally around the market and tap into various ways the market can impact the government’s developmental project,” the national president of New Dimension Shareholders, Patrick Ajudua, told The ICIR.

Already, the federal government is apprehensive that low oil production would put its 2024 budget revenue at risk, making analysts query why the government has yet to maximise the opportunities in the market for economic development.

Re-awakening foreign investors’ confidence

Every month, the NGX polls trading figures from market operators on their domestic and foreign portfolio investment (FPI) flows.

Between January and May, which was the latest data released by the NGX, foreign transactions in the Nigerian market rose by 134 per cent to N124.28 billion from N53.11 billion.

“Yes, we noted some level of improvement in foreign portfolio investment in the Nigerian equity market in the first half of the year which is quite commendable,” Ajudua said.

He pointed out the reasons to include the recent upward review of interest rates by the CBN, which propelled more investment in treasury bills and government bonds.

Other reasons are the federal government’s commitment to providing an enabling environment for foreign investors to repatriate their returns on investment, the reduction of external debt, and the improvement of the economic rating of the country by rating agencies.

He noted that no amount of investment would be required to stimulate foreign investors’ participation in the Nigerian stock market to sustain the boom.

He pointed out, however, that all that is needed to continually enjoy foreign investors’ participation is to provide the enabling environment that will guarantee the safety of their investment, ensuring the availability of foreign currency for repatriation of their returns and reducing operational costs.

“Once they can be assured of good returns on their investment, the market will experience more significant improvement,” Ajudua maintained.

An investment and portfolio analyst, Abel Ezekiel, told The ICIR that the reawakening of investors’ interest could be traced to companies’ earnings, especially the banks.

He noted for instance that the United Bank for Africa (UBA) with a price of below N25 per share did pay a dividend of about N2.80, and Zenith N3.50 at a price of below N40 per share, which were quite commendable.

“At the same time, CBN’s rate hike, which to an extent leads to more returns for fixed-income investors, has boosted the interest of foreign investors and local investors too,” Ezekiel said.

Pointing also to the banks’ capital raising, he said Fidelity Bank has offered N9.25 for its rights issue and N9.75 for a public offer in its ongoing N127.10 billion capital raising to give a reasonable premium on the price to encourage investors.

“Again, in most of these banks, a lot of the directors have an interest in them. They want to increase and maintain a reasonable number of shares to maintain their holdings so that when the rights issue comes, they will be able to have appreciable units that will come to them to maintain or even increase their holdings in those banks.

“A classic example is what is going on in FBN Holdings. Even though the bank’s performance went as high as N43 per share within the first quarter before it slowed to about N24, you will find out that the dividend declared is not that encouraging, but because the chairman (Femi Otedola) wants to maintain a stronghold on the bank that boosted the performance of the bank.

“We can now see that most of the banks’ directors are increasing their shares in the banks for that by the time the rights issues are offered it would not significantly dilute their holdings in the banks,” he explained.

He believes that no amount of foreign investors’ participation can keep the market booming, but that the focus should be on driving the market towards the N1 trillion economy as envisaged by President Bola Tinubu’s administration.

Continuous boom anticipated for second-half

Shareholders prospect that the stock market will record a higher performance in the second half of the year on account of capital raising by the banks.

The CBN had approved a variety of measures, including rights issues, private placement, and public offers, for banks to raise capital and meet its recapitalisation requirements.

The banks are to raise their capital base to N500 billion, N200 billion, N50 billion, N20 billion, and N10 billion depending on their authorisation.

“We need to realise that investors are already taking positions in anticipation of capital raising by banks.

“So it is anticipated that there will be more activity in banks’ shares in the second half leading to improvement in share prices of bank stock. Also, investors are taking positions for the declaration of interim dividends by some banks which will further spur their interest in the recapitalisation process,” Ajudua said.

On his part, Ezekiel expressed that investors anticipate that a lot of companies come into the market, and said, “We expect Dangote Refinery and NNPC to be listed.”

“The capital raising from the banks is expected to boost liquidity, attract more investors, and lead to a paradigm shift from the paper documentation we used to have in capital raising to a digital system where everything will be done electronically,” he added.

Race to acquire banks’ shares

As banks’ recapitalisation intensifies, an analysis of directors’ dealings with the NGX between May and June shows that bank directors have acquired about 1.86 billion shares worth around N39.32 billion to increase their stakes.

For instance, the FBN Holding Chairman, Femi Otedola, after buying N18.95 billion shares to regain his stake later raised it to about N36.35 billion, making him the largest shareholder in the banking group.