The NGX All-Share Index experienced a significant decline in April, losing N3.57 trillion in market value.
This downturn represents the first monthly decline for the NGX this year, contrasting with gains of 17.7%, 12.47%, and 5.64% recorded in January, February, and March respectively. Despite this setback, the NGX is still up by 31.36% year-to-date.
The sharp drop in the index was influenced by several policy announcements from the Central Bank of Nigeria (CBN). Notably, the CBN announced a new recapitalization plan for commercial banks, aiming to raise an estimated N4 trillion in fresh capital over the next two years.
Further exacerbating the market’s reaction was the decision by the CBN’s Monetary Policy Committee (MPC) to increase the benchmark interest rate by 200 basis points, moving from 22.75% to 24.75%.
This significant rate hike led to intensified sell-offs, resulting in a 6% decline in the local bourse, with the benchmark index closing at 98,225.63 points.
Notably, the NGX All-Share Index fell below the 100,000-point threshold, finishing the day at 98,225.63 points, a stark contrast to its peak of 104,562.06 points at the end of March 2024.
The significant increase in interest rates by the Central Bank of Nigeria has also played a crucial role in this shift. The higher rates have diverted trillions of naira from the stock market to the fixed income market, as investors seek out higher yields.
This migration of capital has further impacted the performance of equities, contributing to the substantial losses observed in April.
Some market analysts also attribute the downturn to a combination of profit-taking by investors following a significant bullish rally and a shift in investment focus towards the fixed-income markets, prompted by the recent policy rate hike. This shift has further impacted on the performance of the equity market.
The Managing Director, of Crane Securities Limited, Mr. Mike Eze in a chat with Naijaonpoint attributed this downturn to investors capitalizing on profits following a notable bullish rally observed in recent times and also the monetary policy rate hike of 24.75% from 22.75%.
He said with the further hike, investors will navigate towards the fixed income space because there is no sentiment when it comes to investment.
Eze noted that the market is information and with the current announcement on the rate hike, there will be a further run on the stock market because investors are going to move to the fixed-income segment in order to reap high returns on their investments.
Victor Chiazor, Analyst and Head of Research at FSL Securities Limited, commenting on the stock market in an exclusive chat with Naijaonpoint, noted that investors are now more informed and engaged, particularly seeking higher returns, especially for traders.