The Nigerian equities market has recorded negative performance two months after the implementation of a flexible foreign exchange (FX) policy by the Central Bank of Nigeria (CBN). This is contrary to expectations that the policy will spur inflow of foreign portfolio and domestic investors and lift the market.
The market has shed N151billion in market capitalisation between June 15 when the policy was announced and last Friday. One of the reasons cited for low portfolio inflow into the market was uncertainty about the nation’s FX policy and the CBN’s capital controls.
Available data from the NSE revealed that Foreign Portfolio Investment (FPI) accounted for 40.43 per cent (N189.45 billion) of total transactions on the nation’s bourse in the first five months of the year, down from 57.04 per cent (N519.34 billion) during the same period the previous year.
So when the CBN announced a flexible policy, it was highly expected that the market would rebound on positive reactions to the policy by foreign and domestic investors.
Although reactions were positive initially, leading to a rise of 1.12 per cent in the Nigerian Stock Exchange (NSE) All-Share Index (ASI) from June 20 to 30, it began a down ward trend since July to last Friday. In all, the market has declined by N151 billion in capitalisation, falling from N9.579 trillion pre-flexible policy to N9.428 trillion last Friday. The ASI has fallen by 1.6 per cent, from 27,891.96 to 27,450.91.
A market analysts, Jude Fejokwu said the market had a transient boost during the last nine trading days of June before returning to a persistent decline after global markets recovered post-Brexit.
Looking at the impact of the policy on the market, analysts at Cordros Capital Limited (CCL), said although the CBN may have responded to the agitations of the FPIs with its decision to lift restrictions on the local currency, early signs since the kick-off date show that the programme has had no immediate impact on FPI activities in equities.
“FPI consensus is that the Naira is not sufficiently devalued at N282-285/US$. Overlaying this on reports from the grapevine that the liquidity of the local currency exchange rate is still (indirectly) largely under the control of the apex bank (judging by the relative stability of the NGN) risks Nigeria from being eliminated from the MSCI Frontier Market Index at the next index review in September and further dampens expectations of expansionary foreign investment flows into Nigeria’s risky assets in the near term,” they said.
The hike in the Monetary Policy Rate to 14 per cent also had a negative impact on the equities market. According to analysts, they expect attractive yields in the fixed income market (as a result of the hike in MPR) to shift investors focus from equities.
“Also, lower oil price and lack of FX liquidity are expected to continue to dampen economic and corporate outlook. We believe that all these factors will weigh on investors’ confidence in the equities market,” they added.
Crude Oil Dips Slightly on Friday Amid Demand Concerns
On Friday, global crude oil prices experienced a slight dip, primarily attributed to mounting concerns surrounding demand despite signs of a tightening market.
Brent crude prices edged lower, nearing $83 per barrel, following a recent uptick of 1.6% over two consecutive sessions.
Similarly, West Texas Intermediate (WTI) crude hovered around $78 per barrel. Despite the dip, market indicators suggest a relatively robust market, with US crude inventories expanding less than anticipated in the previous week.
The oil market finds itself amidst a complex dynamic, balancing optimistic signals such as reduced OPEC+ output and heightened tensions in the Middle East against persistent worries about Chinese demand, particularly as the nation grapples with economic challenges.
This delicate equilibrium has led oil futures to mirror the oscillations of broader stock markets, underscoring the interconnectedness of global economic factors.
Analysts, including Michael Tran from RBC Capital Markets LLC, highlight the recurring theme of robust oil demand juxtaposed with concerning Chinese macroeconomic data, contributing to market volatility.
Also, recent attacks on commercial shipping in the Red Sea by Houthi militants have added a risk premium to oil futures, reflecting geopolitical uncertainties beyond immediate demand-supply dynamics.
While US crude inventories saw a slight rise, they remain below seasonal averages, indicating some resilience in the market despite prevailing uncertainties.
Nigeria’s Petrol Imports Decrease by 1 Billion Litres Following Subsidy Removal
Nigeria’s monthly petrol imports declined by approximately 1 billion litres following the fuel subsidy removal by President Bola Ahmed Tinubu, the National Bureau of Statistics (NBS) reported.
The NBS findings illuminate the tangible effects of this policy shift on the country’s petroleum importation dynamics.
Prior to the subsidy removal, the NBS report delineated a consistent pattern of petrol imports with quantities ranging between 1.91 billion and 2.29 billion litres from March to May 2023.
However, in the aftermath of Tinubu’s decision, the nation witnessed a notable downturn in petrol imports, with figures plummeting to 1.64 billion litres in June, the first post-subsidy month.
This downward trend persisted in subsequent months, with July recording a further reduction to 1.45 billion litres and August witnessing a significant decline to 1.09 billion litres.
August’s import figures represented a decrease of over 1 billion litres compared to the corresponding period in 2022.
The NBS report underscores the pivotal role of the subsidy removal in reshaping Nigeria’s petrol import landscape with the Nigerian National Petroleum Company emerging as the sole importer of fuel in the current scenario.
Despite higher petrol imports in the first half of 2023 compared to the previous year, the decline in June, July, and August underscores the profound impact of subsidy removal on import dynamics, affirming the NBS’s latest findings.
Nigeria’s Oil Rig Count Soars From 11 to 30, Says NUPRC CEO
The Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Gbenga Komolafe, has announced a surge in the country’s oil rig count.
Komolafe disclosed that Nigeria’s oil rigs have escalated from 11 to 30, a substantial increase since 2011.
Attributing this surge to concerted efforts by NUPRC and other governmental stakeholders, Komolafe highlighted the importance of instilling confidence, certainty, and predictability in the oil and gas industry.
He explained the pivotal role of the recently implemented Petroleum Industry Act (PIA), which has spurred significant capital expenditure amounting to billions of dollars over the past two and a half years.
Speaking in Lagos after receiving The Sun Award, Komolafe underscored the effective discharge of NUPRC’s statutory mandate, which has contributed to the success stories witnessed in the sector.
The surge in Nigeria’s oil rig count signifies a tangible measure of vibrant activities within the upstream oil and gas sector, reflecting increased drilling activity and heightened industry dynamism.
Also, Komolafe noted that NUPRC has issued over 17 regulations aimed at enhancing certainty and predictability in industry operations, aligning with the objectives outlined in the PIA.
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