The Director of the Institute of Capital Market Studies at the Nasarawa State University, Professor Uche Uwaleke has called on the Nigerian Exchange Limited (NGX) to place a 5 per cent limit for banking stocks in the country.
Uwaleke in a statement said this will make the stock market more resilient, curb the current speculative frenzy, and also dampen any extraordinary volatility swings on the share prices of banking stocks in particular.
He also urged the NGX to designate banking stocks as Systemically Important Stocks (SIS).
Uwaleke said if the NGX finds a reason to adopt this recommendation, it would not be the first to apply differentiated price limits as a market stabilization mechanism.
“Studies have shown that by constraining prices, wild intraday price swings are prevented from occurring, which, in turn, translates to lower market volatility,” he said.
He stated that against the backdrop of the likelihood of limited forex gains on the part of quoted banks following exchange rates unification as well as downside surprises in the stock market in 2024, investors will be well advised to follow the time-honoured cautious path of diversification, hedging, and long-term (DHL) approach to investments.
The Professor noted that the Nigerian stock market has been exceptionally bullish recently with share prices soaring since the start of 2024.
According to him, few believe that this momentum in stock price is correlated with the fundamentals of quoted companies.
For instance, he said in just one trading day on January 9, 2024, the benchmark NGX All-Share Index (ASI) soared 2,867.31 (3.57 per cent) points to close at 83,191.84, representing a 1-week gain of 9.48 per cent, and an overall year-to-date gain of 11.26 per cent. FBN Holdings led the gainers with a 10 per cent share price appreciation closing at NGN 28.60 per share.
“Indeed, Banking stocks, influenced by FOMO (fear of missing out) appear to be leading the charge not least because of the impending banking sector recapitalization announced by the CBN Governor.
“Surprising, this sector has been invaded by Speculators resulting in all the tier-1 banks in Nigeria namely First Bank, UBA, GTBank, Access Bank, and Zenith (popularly referred to as FUGAZ) crossing the N1 trillion market capitalization mark. Just this year alone, as of January 9, Accesscorp had gained 28.3 per cent, FBNH 21.4 per cent. GTCO 19 per cent, UBA 27.1 per cent and Zenith 22.5 per cent,” he said.
Uwaleke noted that like a tide that lifts all boats the bounce in banking stocks may be pushing the share price of many listed companies beyond their intrinsic values..
