Despite global economic uncertainty and increased insecurity, Nigeria’s stock market has continued to rise, bringing optimism to patient investors who have survived long periods of decline on the Nigerian Exchange Limited (NGX).
After falling to a multi-year low, the stock market has experienced an unprecedented uptick since the beginning of the year, emerging as Africa’s top performing market and the world’s third.
The NGX’s All Share Index (ASI), which tracks the general market movement of all listed stocks on the exchange, has surpassed 53,000 for the first time since 2008, as indices have risen by N5.4 trillion since the start of the year.
Specifically, market capitalisation opened the year at 43,026.23 to close on Friday, May 13, at 53,098.46 points for the first time since 2008, representing 19 per cent appreciation, while trading for the year opened on January 4 with N23,187 trillion to close on Friday at N28,625 trillion, representing N5,438 trillion increase.
The Chief Executive Officer, Wyoming Capital and Partners, Tajudeen Olayinka, hinged the upswing trend on improved system liquidity that is traceable to massive reinvestment of 2021 yearly dividends by investors, who received their payments recently from listed companies.
According to him, the fact that dividends are now paid electronically means that institutional investors who do not have immediate need for cash can reasonably deploy such dividends to more profitable stocks given the low and attractive prices.
Olayinka also attributed the rally to low yield in the money market instruments and liquidity overhang that makes it practically difficult for investors in the fixed income sector to factor in current high inflation rate.
He said the current negative return in the fixed income market is forcing investors to embrace the equities market as an alternative investment class, which is known to readily adjust to inflation from time to time.
He disclosed that Pension Fund Administrators (PFAs) and other investment companies that pitched their tent in the fixed income market due to lull in equities have currently increased their stake in the stock market to ensure guaranteed investment return and capital appreciation.
“We saw more investors deploying their dividends payout into equities late April and early May, this year. Also, the availability of derivative instruments that now serve as perfect means of hedging against volatility and other risks in the equity market. This is capable of attracting liquidity to the equity market.
“More institutional investors, particularly pension funds and asset management companies, are likely to embrace equity market as a result, and we are beginning to see that in the market,” he said.
Indeed, negative sentiments have been dominating global equities as investors’ appetite for risk assets was clouded by worries over rising global inflation, speedy interest-rate hikes by major central banks and China’s reinforcement of its zero-COVID-19 policy, which stoked concerns about global growth and the ongoing Russia-Ukraine crisis.
For instance, global markets fell sharply last week, as fears over rising inflation and a slowdown in China’s export growth fueled worries about the health of the world economy.
Stocks in Asia-Pacific markets, Europe and the United States all dropped into the red as investors fretted that global growth is weakening, at a time when Central Banks are raising interest rates to rein in surging inflation.
Head of Equity Trading, Planet Capital, Paul Uzum, said fantastic first quarter (Q1), 2022 financial results across sectors: consumer goods, agro allied, food and beverages, telecommunication, healthcare, industrial goods, energy and banking beat market expectations.
According to him, high inflation made companies under these sectors to increase prices, which they have successfully passed on to final consumers without increasing cost.
A look at the full year 2021 and Q1 2022 result of some listed firms showed that Fidelity Bank’s Profit Before Tax (PBT) increased by 35.7 per cent from N28.05 billion in the 2020 financial year to N38.07 billion in the review period. Deposits also grew by 19.2 per cent to close at N2.02 trillion.
Also, Unity Bank’s audited result for the period ended December 31, 2021 showed a PBT of N3.33 billion, indicating a 49.9 per cent increase over N2.22 billion posted in 2020.
The bank’s Profit After Tax (PAT) rose by 52.1 per cent to N3.17 billion from N2.09 recorded in 2021. The bank also grew its gross earnings by 8.1 per cent to N50.28 billion from N46.52 billion in 2021.
Seplat Energy Plc posted a profit before tax of N34.7 billion in its first quarter (Q1) operations, against N10.6 billion achieved in the corresponding period in 2021.
Specifically, the company’s unaudited results for the three months ended March 31, 2022 showed 197.8 per cent rise in profit before tax to N34.7 billion from N10.6 billion recorded in the previous year.
An independent investor, Amaechi Egbo, said if the pre-election peace is sustained with market-oriented economic policies, it would continue to drive equities. He described the improvement as restoration of investors’ confidence in the market.
He attributed the volume of transactions recorded in April and this month to massive ‘buying’ from investors, an indication that there are anticipations of positive prospects coming to the stock market.
“Confidence has been brought back. People are buying in anticipation of positive prospect coming to the capital market. Confidence has been increased. They are expecting sustained bull run that would translate to improved corporate performance in 2022.
Vice President of Highcap Securities Limited, David Adonri, attributed the growth to high crude oil price and generally impressive first quarter results released so far by listed firms.
He said the market has been in a downturn for a while and this presented opportunities for bargain-hunting, which boosted demand for several stocks considered undervalued.
However, he noted that the rally would lose steam due to increasing socio-political risk, recession in industrialised economies and mounting insecurity.
“The continued rally on equities is due to impressive Q1 results and other positive price sensitive disclosures concerning some high cap stocks.
“Favourable crude oil price is also a propelling factor. When political tension attendant to 2023 election starts mounting coupled with economic slowdown in industrialised economies, market correction will set in,” he said.
Although the nation’s market was flat in February and early March, but better-than-expected full year 2021 earnings, positive earnings expectations for Q1, 2022, corporate actions and investors increasing their stake on blue-chip companies in anticipation of expansion in profits have continued to support the market, raising questions as to whether Nigeria is insulated from global market dynamics.
Despite the rout across the global equities market, the rally in Nigerian equities market remained unscathed. This is now the market’s fifth consecutive weekly gain since December 24, 2020.
The stock market segment of the NGX gained N4.46 trillion in its year-to-date (YtD) performance, outperforming the Egyptian Exchange, Johannesburg Stock Exchange and Ghana Stock Exchange, among others of its peers in the continent.
Data compiled from the website of other stock exchanges in the continent revealed that the Financial Times Stock Exchange (FTSE)/ Johannesburg Stock Exchange (JSE) in its YtD performance dropped by 1.72 per cent, just as the Egyptian Exchange’s EGX 30 Index in its YtD performance also dropped by 7.54 per cent.
Further findings revealed that the Casablanca Stock Exchange’s MASI Index in its YtD performance depreciated by 1.66 per cent, while the Ghana Stock Exchange Composite Index contracted by 3.52 per cent to 2,691.19 index points as of April 29, 2022.
Similarly, the Uganda Securities Exchange’s (USE) All Share Index was down by 12.23 per cent YtD performance to 1,246.99 basis points as of April, 2022.
On the flipside, the Lusaka Securities Exchange’s All-Share Index recorded an impressive performance with a gain of 14.27 per cent to 6,924.34 in its YTD growth just as the Namibian Stock Exchange’s NSX overall Index appreciated by 10.64 per cent to 1,738.93 points as of April 29, 2022.
Capital market analysts attributed the growth of the NGX to steady increase in global oil price and listed companies’ impressive earnings post-COVID-19. They explained foreign analysts’ projections of Nigeria’s economy pre-election also played a critical role in foreign investors’ increased participation in fundamental stocks listed on the bourse.
The International Monetary Fund (IMF) recently raised Nigeria’s 2022 economic growth forecast marginally from the 2.7 per cent it had previously estimated to 3.4 per cent.