As Peaceful Post-Election Atmosphere, Reduction in MPR Fail to Lift Local Bourse in 1Q 2019…
Recently released report by the Nigerian Stock Exchange (NSE) on domestic and foreign portfolio participation in equities trading for the first quarter in 2019, showed that equities market transactions significantly slowed when compared with the equities trades done in 1Q 2018.
This was due to the negative sentiments of the retail, domestic institutional and the foreign portfolio investors (FPIs), even as implementation of the Multi Fund Pension Structure since 2018, relatively peaceful post-election atmosphere and reduction of the Monetary Policy Rate (MPR) to 13.50% from 14.00% failed to lift the market in the quarter under review.
Hence, the NSE All Share Index (ASI) plunged by 1.24% to 31,041.42 index points in March 29, 2019 (from 31,430.50 index points in December 31, 2018).
All the sectored guages also plummeted: the Industrial, Oil & Gas, Consumer Goods, Insurance and Banking indicies nosedived by 14.07%, 13.55%, 13.54%, 9.67% and 9.30% respectively to 1,063.71 points, 261.28 points, 647.45 points, 114.25 points and 361.35 points respectively in 1Q 2019.
Further analysis showed that total transactions on the nation’s bourse decreased to N420.26 billion in 1Q 2019 (from N878.97 billion in 1Q 2018); of which FPI transactions declined to N221.87 billion (from N381.82 billion) while domestic transactions moderated to N198.39 billion (from N497.15 billion).
Breakdown of the FPI transactions in 1Q 2019, showed that foreign portflio outflows which fell by 29.19% to N124.24 billion, outstripped the foreign portfolio inflows which also fell by 52.69% to N97.63 billion by 27.26%. Similarly, on a yearly basis, domestic institutional transactions declined by 65.29% to N100.29 billion in 1Q 2019 from N288.91 billion in 1Q 2018 while the retail transactions dipped by 52.89% to N98.10 billion from N208.24 billion.
Elsewhere, in line with our expectation, as documented in our inflation update of March 2019, April headline inflation rate rose to 11.37% year-on-year (from 11.25% in March 2019), to halt the three consecutive months of decline.
The renewed upward movement in annual inflation rate was chiefly driven by consistent rise in food inflation rate as it grew further to 13.70% y-o-y from 13.45% in March 2019. Food prices, especially in Kaduna, Kebbi, Kwara and Zamfara States inflated y-o-y to 16.77%, 16.75%, 16.34% and 16.24% in April 2019 respectively.
Also, the pressure on general price level of food rose m-o-m to 1.14% (higher than 0.88% in March 2019), above the 1% mark it last printed in September 2018. Change in consumer price index for imported food rose m-o-m by 1.24% to 301.76 points from 298.06 points in March 2019, amid monthly average depreciation of the Naira against USD in most forex market segments (FX rate rose m-o-m by 0.25% to N358.00/USD at the BDC market).
On the flip side, core inflation rate grew slower on an annual basis, to 9.28% from 9.46%. This was partly driven by 3.60% y-o-y fall in the average costs of Premium Motor Spirit (PMS).
However, we saw other energy prices, for kerosene and diesel, rise y-o-y by 13.57% and 12.88% respectively. Meanwhile, Inflation rate in the urban and the rural areas also rose y-o-y to 11.70% (from 11.54%) and to 11.08% (from 10.99%). We expect inflation rate to further move upwards in the months of May and June amid Ramadan festivities and the recent signing of the new minimum wage bill.
Meanwhile, we feel the ongoing court case challenging the outcome of the recently conducted presidential elections, would keep equity investors on the side lines as it tends to create political uncertainty.
However, we expect the local bourse to rebound after President Buhari’s inauguration and nomination of members of his cabinet, especially if the appointed ministers are perceived by investors to be market friendly.