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Stock Market Struggles for Recovery Amid N3.4tn Loss

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  • Stock Market Struggles for Recovery Amid N3.4tn Loss

The nation’s stock market is struggling to rebound as efforts to lure back investors received a boost following the creation of a new foreign-exchange window by the Central Bank of Nigeria.

The stock market, said to be one of best performing frontier markets globally until 2013, has been in the doldrums for the past two years as investor confidence continued to sag.

Many investors who were spooked by the low liquidity levels and currency curbs in the country have yet to return to the market.

Capital market analysts say not a few local investors have exited the stock market in favour of less volatile fixed-income instruments such as government’s Treasury bills with high yields.

The market capitalisation of listed equities on the Nigerian Stock Exchange closed at N8.913tn on Friday, up from N8.716tn last week.

The NSE market capitalisation, which hit a peak of N12.135tn on April 2, 2015, fell to N9.25tn at the end of last year.

Foreign transactions on the NSE plunged to N518bn last year from as high as N1.54tn in 2014, when oil prices peaked at $115 per barrel.

The nation’s currency crisis occasioned by the sharp drop in oil prices since mid-2014 led to equities sell-offs by foreign and local investors.

The value of trading on the NSE dropped by 22.3 per cent to N74.1bn in February from N95.32bn in January, according to the latest Domestic and FPI Report.

Domestic transactions decreased by 22.88 per cent from N51.31bn recorded in January to N39.57bn in February; foreign transactions also decreased by 21.52 per cent from N44.01bn to N34.54bn.

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said two factors would lead to the stability of the equities market.

He said, “One is the local policy environment. Today, we have yields on the Federal Government’s treasury bills of three to four-day maturity at about 18.9 per cent. So that yield is higher than any dividend yield you expect.

“So, with a yield in fixed income of about 18.9 per cent, local investors will prefer fixed income instruments to equities.”

He said foreign portfolio investors would also prefer fixed-income instruments to equities instrument.

Chukwu said, “But beyond that, foreign portfolio investors need to invest in a market where there is dollar liquidity and then the market is transparent in the pricing of foreign currencies. Both do not currently exist in the Nigerian economy.

He said those factors plus the elevated yield on fixed-income instruments had served as disincentives for investors to invest in equities.

“Until those factors are addressed, we are not going to see a bullish run in or any consistent rally in the equities market,” Chukwu added.

On April 21, the Central Bank of Nigeria established a forex widow for investors and exporters to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

The Acting Managing Director, Afrinvest Securities Limited, Mr. Ayodeji Ebo, said, “It all boils down to investors’ confidence, which is key. If you look at the way the equities market is structured, the participation of foreign portfolio investors cannot be ignored.

“If the new window is effectively implemented, it will help boost confidence because foreign investors are more interested in liquidity and they easily exit the market.”

According to him, a lot of foreign investors’ funds are still trapped in Nigeria waiting for when they will get dollars at the appropriate rate.

“This has dampened the foreign investors’ confidence significantly such that they are not bringing in more; they try as much as possible to take out,” he said.

He said on the domestic front, the direction of the economy had not been very clear although the government was doing a lot to ensure that.

Ebo said, “So, in times of uncertainty, people don’t spend; and once they don’t spend, it will affect the results of quoted companies and participation will also reduce. So, it is more of restoring confidence.”

The Board Chairman, Nigerian Economic Summit Group, Mr. Kyari Bukar, “It is the lack of clarity on the foreign exchange policy that is making them (foreign investors) to stay on the sidelines.

“If they see that clarity, they will begin to bring in their money. With the foreign portfolio investors, there has to be absolute clarity in the sense that they can easily come in and go out at a market-determined rate rather than a rate that someone sets and could change overnight.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

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Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

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Naira

Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

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The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

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CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

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Naira Exchange Rates - Investors King

Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

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