The market capitalisation of the Nigerian Exchange (NGX) plunged by over N2.5 trillion in October, about the worst negative returns on equities investment in one single month since the aftermarket crash in 2008.
Aggregate losses recorded in the share price of Airtel Africa between October 4 when the stock price stood at N2,000 and October 31 when the price dropped to N1,251 accounted for about N2 trillion of the total N2.5 trillion plunge of investments in equities in the month.
Airtel has 3.76 billion shares outstanding. At N2,000 per share, its market capitalisation topped N7.5 trillion on Tuesday, October 4 when trading resumed after the public holiday in commemoration of Nigeria’s independence anniversary.
But at the close of trading on Monday, October 31, the share price of the stock had crashed to N1,251, about its lowest during the one-month period leaving the equity’s capitalisation at N4.70 trillion.
In the period under review, market capitalisation sharply declined from the opening level at N26.451 trillion on Tuesday, October 4, 2022 to N23.877 trillion at the close of business on Monday, Oct. 31. This indicates a 9.72 percent decline.
The equities performance indicator of the All Share Index significantly tumbled 5,185.08 basis points or 10.57 percent to 43,839.08 points down from opening 49,024.16 points.
Out of the 11 NGX sectoral indices, eight of them sharply declined in performance. While one (NGX-AFR Bank Value Index) appreciated slightly, the NGX Banking Index depreciated to 375.01 points down from 379.20 points in September while NGX ASeM Index closed flat.
The NGX Main-Board Index depreciated the most, dropping 322.96 basis points or 14.34 percent to 1,928.63 points end of October down from 2,251.59 points end of September.
The NGX Premium Index also depreciated by 227.59 basis points or 5.12 percent to 4,210.81 points end of October, down from 4,438.40 points end of September.
The NGX-30 Index fell from 1,746.95 points end of September to 1,579.86 points end of October, just as others suffered varying degrees of losses.
“The market decline is in line with general expectations given the aggressive rate hike by the CBN. However, I did not expect this high percentage loss in a single month. I think it is as a result of price decline in the valuation of Airtel Africa,” a senior dealing member of the exchange, Tajudeen Olayinka of Valmond Securities Limited, told our correspondent on Tuesday.
Olayinka said apart from the grave impact of the CBN rates hike, the market was bleeding from a more grievous impact of the price decline in heavily capitalized Airtel Africa which enjoys dual listing status on both the London Stock Exchange (LSE) and Nigerian Exchange (NGX).
But where it trades at about £116 per share on LSE it is trading at about N1,251 per share on Nigerian Exchange (NGX), our findings revealed.
The Valmond Securities boss, therefore called for an investigation into Airtel’s price disparity between the London Stock Exchange (LSE) where the stock trades at £116 as of Tuesday, Nov. 1, 2022, and the Nigerian Exchange where it is trading at N1, 251 per share, blaming the sharp decline partly to the price disparity, a case of arbitrage.
From a low of N780 per share at NGX on November 5, 2021, the share price of Airtel Africa jumped to an all-time high of N2, 095.90 per share on July 28, 2022, before dropping to its current price.
On Tuesday, November 1, 2022, the price fell N24 or -1.88 percent to close at N1,251, about 60.38 percent above the 52-week low of N780 per share set on Nov 05, 2021.
Olayinka said the price disparity is the root cause of its accelerated price depreciation on NGX.
On Tuesday, September 27, 2022, the (MPC) a policy-setting committee of the Central Bank of Nigeria (CBN) raised the monetary policy rate (MPR), which measures interest rate, from 14 percent to 15.5 percent, the third consecutive increase in 2022.
All in a radical move to fight galloping inflation, the Monetary Policy Committee also raised the cash reserve ratio (CRR) to 32.5 percent from 27.5 percent. CRR is the share of a bank’s total customer deposit that must be kept with the central bank in the form of liquid cash.
Reacting to the development, analysts at Lagos-based Cordros Capital Limited said “Considering the outcome of the MPC meeting, we believe the CRR hike would drag banks’ profitability, as downward pressure on net interest margins (NIM) would inhibit earnings growth and may further limit investors’ interest in banking stocks.”
The analysts also predicted migration away from the equities market to fixed income, urging equities investors to take positions in only fundamentally justified stocks as the fragility of the macroeconomic environment remains a significan
