Money market crash triggers largest daily gain in five years

Trading floor of the Nigerian Stock Exchange (NSE)

By Helen Oji

 Index soars by 12.97% in five trading days
Declining interest rates in the fixed income market triggered massive rally on the equities sector of the Nigerian Stock Exchange (NSE) last week, as the market All-Share Index (ASI), and market

capitalisation both appreciated by 12.97 per cent, its eighth-consecutive weekly gain to close at 35,037.46 and N18.308 trillion, respectively.

Similarly, all other indices finished higher, while the NSE ASeM Index closed flat.

Also, the market posted its largest daily gain in more than five years last week Thursday, spurred by the activation of circuit breaker in the market for the first time since its introduction in 2016, as the ASI soared beyond the set threshold of five per cent.

Operators linked the unprecedented rally to the declining interest rates in the fixed income market, which is currently ridiculously low, while local institutional investors see the equities market presently as a destination of investment.

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Recall that over the last 10 years, it has been remarkably easy to beat inflation by buying FGN Treasury Bills, which averaged 2.57% above inflation between 2010 and 2019.

However, with the crash in interest rates in the first half of the year, this era ended abruptly.

Analysts at Codros capital said: “In the short to medium term, we still see scope for expansion in valuation multiples as sub 1% yields on NTBs will continue to engender rejigging of portfolios towards equities.

“In the week ahead, we expect investors’ attention to be centred on Q3 earnings yet to be published from the big banks (FUGAZ).

“Considering the robust gains recorded across most counters over the past two months, we expect some profit-taking activities, albeit a short-lived one.

“We reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings.”

Afrinvest Research said: “While we anticipate profit-taking in the coming week, we expect the equities market to extend the bullish streak with mild gains.”

A review of the market performance last week showed that investors’ continued interest in some high capital (high cap) stocks, especially Dangote Cement and MTN Nigeria Communications (MTNN), resulted to a further rise in market capitalisation by N641 billion on Monday.