CRR impact: Selloffs in banking stocks pare equities by N405bn

By Omobayo Azeez

• Further impact may reverse 7.5‭ ‬per cent monthly gain

The Nigerian equities market suffered its first weekly loss of 2020 as the impact of the Central Bank of Nigeria’s (CBN) hike in the cash reserve ratio (CRR) by 500 basis points to 27.5 per cent resulted in selloffs of banking stocks.

Volatility in the market continued during the week as the market’s decline narrative continued in even an accelerated pace despite the increasing number of companies reporting their Q4 and full-year unaudited earnings reports.

During the week, investors stormed the market to move their investment from banking stocks, a development that led to depreciation in the share prices of the banks and cost the banking stocks -5.2 per cent decline in value, its largest decline since the week ended August 9, 2019.

The All-Share Index (ASI) plummeted by 2.7 per cent to close at 28,843.53, marked as the largest weekly loss since the week ended April 5, 2019, while valuation of equities in the market shed N405 billion to close lower at N14.857 trillion.

The development caused year-to-date (YtD) and January return of the market to retract to +7.5 per cent from 10.38 per cent it stood at the close of the market the previous week.

Meanwhile, all other indices finished lower with the exception of NSE insurance and NSE consumer goods index which appreciated by 0.90 per cent and 0.09 per cent respectively while NSE ASeM Index closed flat.

Market pundits see the recent increase of CRR by the apex bank to 27.5 per cent for banks as a downside risk, which has started taking tolls on investors’ confidence in banking stocks at the capital market.

Meanwhile, analysts further expressed concern that the 7.5 per cent appreciation recorded on equities investment in January may be shaved off as the increased CRR and mixed earning reports continue to impact on market performance.

“In our view, the trend witnessed this week is likely to persist, as the dual impacts of the weakening sentiment and mixed earnings performances during earnings season are expected to pressure market return,” according to analysts as Codros Capital Limited.

Commenting on situation in the Nigerian stock market, Ambrose Omordion, chief research analyst at InvestData, said mixed trend will continue in the market amidst profit-taking and positioning by investors taking advantage of the pullbacks, as the impact of last week’s CRR adjustment, slows down ahead of the full-year earnings reporting season.

He added that this is also against the backdrop of the fact that the capital wave in the financial market may change in the midst of the unstable economic outlook for 2020.

“Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which had pushed the market out of the bearish zone.

“We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.

“Again, the current undervalued state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation in the New Year,” he said.

As the week closed, a total turnover of 1.561 billion shares worth N26.073 billion in 21,444 deals were traded by investors on the floor of the exchange, in contrast to a total of 1.237 billion shares valued at N22.762 billion that exchanged hands in 21,156 deals the previous week.

The financial services industry, measured by volume, led the activity chart with 1.154 billion shares valued at N13.650 billion traded in 11,306 deals; thus contributing 73.93 per cent and 52.35 per cent to the total equity turnover volume and value respectively.

The consumer goods followed with 137.115 million shares worth N3.177 billion in 2,908 deals while the third place was ICT industry, with a turnover of 94.464 million shares worth N6.554 billion in 894 deals.

Also trades by Veritas Kapital Assurance Plc, Zenith Bank Plc and Guaranty Trust Bank Plc were the top three equities by volume as they accounted for 604.668 million shares worth N9.370 billion in 4,069 deals, contributing 38.74 per cent and 35.94 per cent to the total equity turnover volume and value respectively.

In addition, investors also transacted a total of 29,514 units valued at N7.781 million in 14 deals during the week compared with a total of 141 units valued at N520, 511.70 transacted in 6 deals in the preceding week.

A total of 24,014 units of Federal Government Bonds valued at N26.120 million also exchanged hands this week in 12 deals, as against 59,632 units valued at N71.501 million transacted in previous week in 24 deals.