By Dipo Olowookere
The desire to hedge against inflation has forced some investors back into the equity market, resulting in an increase in their participation in the landscape in the second quarter of 2022 when compared with the first quarter of the year.
According to data from the bourse, in Q2 of 2022, both local and foreign investors traded N485.4 billion worth of stocks on the Nigerian Exchange (NGX) Limited compared with the N346.4 billion traded in Q1 of 2022, indicating an increase of 40.11 per cent.
It was also gathered that in the period under review, traders bought and sold 54.3 billion equities, 143.83 per cent higher than the 22.3 billion equities transacted in the first three months of the year. In the same vein, the number of deals rose by 8.5 per cent quarter-on-quarter to 320,778 trades from 295,533 trades.
It was observed that the major attraction was some stocks with sound fundamentals as investors take a position in companies paying interim dividends as the market looks forward to half-year earnings of listed firms this month.
As a result of the buying pressure, the All-Share Index appreciated by 10.3 per cent to 51,817.59 points in Q2 2022 from 46,965.48 points in Q1 2022, while the market capitalisation grew to N27.94 trillion from N25.31 trillion.
While commenting on the trading data, the chief executive of Wyoming Capital & Partners, Mr Tajudeen Olayinka, noted that improved liquidity in the system in the last six months is responsible for the positive performance of the Nigerian stock market.
Other factors driving liquidity in the equities market, he added, are “instant payment of dividends to shareholders through electronic means (e-dividend), provides opportunities for immediate reinvestment of these dividends, especially by institutional investors, who manage funds and portfolios for clients.
“This did not leave out other traditional investors, who took advantage of low prices, in the run-up to financial year-end rallies that we saw at the beginning of the year 2022.”
He further attributed the buying interests to the “negative real return in the fixed income market and the need to hedge against inflation.”
According to him, “Equity market is an inflation adjusting market, and so, some investors who were willing to hedge against inflation, irrespective of the downside risk that the market poses, decided to bring liquidity back to the equity market.”
“The ongoing crash in the crypto market brought liquidity back to the equity market. It has been said that more Nigerian investors participate actively in the crypto space, and so, the sudden, though long expected crash in that market, made some affected Nigerian investors cut their losses, for less volatile and recoverable opportunities in the equity market.
“Availability of derivative products is encouraging more institutional investors to embrace the equity market. Investors can now short or long the market at ease. All these activities provide liquidity to the market,” Mr Olayinka further stated.
Business Post observed that in the period under consideration, the value of fixed income at the exchange rose by 38.7 per cent to N1.01 trillion from N728.9 billion reported in Q1 2022.
According to the data by the NGX, the volume of fixed income traded moved to 972,206.00 in Q2 2022 from 688,564 reported in Q1 2022, while its market capitalisation jumped to N22.23 trillion from N21.42 trillion.
