Nigerian Banking Index Gains 6.08%, Sets Stage for Year-End Santa Claus Rally

The Nigeria Exchange Limited (NGX) witnessed an impressive surge last week with the banking index appreciating by 6.08% during the past week.

This significant uptick translated into a substantial growth of investors’ wealth by N66 billion.

The bullish trend in banking stocks was bolstered by the surge in investors’ sentiment, which resulted in a 5.01% gain on Wednesday.

However, this jubilant atmosphere faced a momentary setback as sell-offs ensued.

The trigger for this market correction was the revelation that certain Nigerian banks with international operations had capital adequacy ratios below the regulatory benchmark, an announcement made by the Central Bank of Nigeria in its second-quarter report on the financial soundness indicator.

The apex bank elucidated, “The development reflected a decline in the banks’ total qualifying capital relative to the increase in risk-weighted assets due to the depreciation of the naira exchange rate, as a result of the adoption of a market-determined exchange rate policy by the Bank.”

Despite this temporary setback, the overall performance of the stock exchange indicated positive momentum.

The All-Share Index reflected a modest but positive rise of 0.17% to  71,541.74 index points while the market capitalization settled at N39.148 trillion in the week under review.

This notable movement, primarily driven by investor activity in the banking and consumer goods sectors, has set the stage for what is anticipated to be the much-anticipated Santa Claus rally.

The year-to-date return for the index expanded to 39.59%.

While the banking and consumer goods indexes recorded gains of 6.08% and 0.21%, respectively, other sectors experienced varied outcomes.

Indices such as NGX Main Board, NGX Insurance, NGX ASeM, NGX Oil & Gas, NGX Lotus II, and NGX Industrial Goods faced depreciations ranging from 0.22% to 3.03%.

Sell-offs across specific stocks, including Oando, MRS Oil, Juli Plc, BUA Cement, Axa Mansard, and Mutual Benefit, contributed to the recorded dips.

The upward trajectory in the Banking Index was fueled by notable price increases in key stocks, including Ecobank Transnational International, AccessCorp, FBN Holdings, Jaiz Bank, PZ Cussons, Northern Nigeria Flour Mills, and International Breweries.

Throughout the week, a total turnover of 2.423 billion shares worth N45.07 billion was traded in 34,704 deals.

This marked a decrease from the previous week’s trading activity, emphasizing some caution among investors.

The Financial Services Industry took the lead in terms of activity, with 1.726 billion shares valued at N22.76 billion traded in 18,190 deals.

It contributed significantly to the total equity turnover volume and value, accounting for 71.23% and 50.50%, respectively.

The Conglomerates Industry and Consumer Goods industry secured the second and third positions in the activity chart, underlining diverse investor interest.

As the market navigates a path between optimism and caution, analysts are anticipating further profit-taking activities and potential corrections following the recent surge.

According to analysts at Cowry Asset Management Limited, investors are likely to continue rebalancing their portfolios in anticipation of the reporting and dividend earnings season.

Also, the planned stress test of the capital adequacy ratio of Nigerian banks with international operations looms, contributing to an atmosphere of caution.

Cowry Research emphasized the prevailing global risks, including high inflation and forex volatility, prompting investors to tread cautiously as they await the anticipated Santa Claus rally.

The cautious sentiment underscores a prudent approach amidst an ever-changing economic landscape.