September 03, (THEWILL) – Despite concerns around the soaring inflation, interest rate hikes and weak macroeconomic indices, investors’ confidence in Nigeria’s stock market remained strong, leading to Nigerian Exchange Limited (NGX) emerging one of the best performing exchanges in Africa during a three-month duration. According to African markets, a website tracking the performance of exchanges in Africa, Ghana Stock Exchange (+22.84 per cent) emerged first while NGX (+19.33 percent) emerged second on the list, followed by Malawi stock exchange (+15.79 per cent).
This development has pushed the market to its 15-year high on the back of strong positive sentiments, as the market capitalisation – listed value of equities, which opened the trading month of August at N35.011 trillion, closed the month at N36.422 trillion, hence gaining N1.41 trillion. On the other hand, the All-Share Index (ASI), which is the broad index that measures the performance of Nigerian stocks, opened the trading month at 64,337.52 index points at the beginning of trading on August 3, 2023, and closed at 66,548.99 points at the end the month on August 31, gaining 2,211.47 basis points or 3.44%.
The bullish trend can be attributed to investors’ jostling for low, medium, and high capitalised stocks across some major sectors.
This is amid favourable policies introduced by President Bola Tinubu’s new administration such as the removal of fuel subsidies, unification of exchange rate, and investors strategically positioning themselves.
They also took advantage of the recent record earnings posted by quoted firms and the recent formation of the country’s economic cabinet and executives. Interestingly, the market traded in mixed sentiments during the month under review.
Reacting to the performance of the local bourse, market analysts maintained that most investors, particularly domestic investors are optimistic that the economy will take shape soon, hence the reason the stock market is defying current macroeconomic uncertainties.
Cordros Research in their Market review and outlook for financial markets titled; ‘Veering from the watershed point’, stated that the equities market resilience reflects heightened investor optimism for domestic growth with the new administration’s promulgation of long-needed policies.
According to the report, the implementation of policy reforms, accommodative monetary policy and resilient corporate earnings have so far supported buying activities in August. The report further said that “Even though foreign investors are expected to stay on the sidelines as long as FX illiquidity issues persist, its baseline expectation is that the market will deliver a positive return of 25.8% in the full year of 2023.
Despite the rising inflation, interest rate hike, naira redesign-induced cash crunch, exchange rate volatility, blurred policy space and the likes, the market rallied amid buying interest from domestic investors, especially in bellwether stocks. Domestic investors also stepped up their listings on the local bourse at a time no foreign investor looked the way of Nigeria.
Investigation showed that, besides buying pressure, no less than N8 trillion was added to the market capitalisation through new listings by eight indigenous firms. This was after the foreign investors took their flight, following the plaque of COVID-19 in 2020.
The newly listed companies include Access Corporation (N562 billion), BAPlc (N62,5 million), Bua Cement (N3.31 trillion) and Bua Foods (N3.44 trillion).
Others are Geregu (N750 billion), GTCO (N1,030 trillion), Ronchess Global (N223.6 billion) and Sterling Financial Holdings (N74.3 billion).
Capital market sources said the battle of huge war chests in the form of Greenmail, which hinges on a hostile approach to take over a target company, could be part of the rally in the equities market.
“Greenmail or greenmailing is the action of purchasing enough shares in a firm to challenge a firm’s leadership with the threat of a hostile takeover to force the target company to buy the purchased shares back at a premium. This could lead to a temporary high in share price,” said Dr Paul Uzum, a stockbroker and Head of Securities Trading at Planet Capital
The Doyen of Nigerian Stockbrokers, Sam Ndata, said the bullish trend in the Nigerian equities market cannot be unconnected with political activities that heightened in 2022, culminating in the general elections in the first quarter of 2023.
“It is usual at every election season; we saw a similar trend in the elections that enthroned former President Muhammadu Buhari in 2015 and 2019 when politicians had a lot of cash at their disposal.
“The politicians are no longer interested in buying houses or dumping their money in their bank accounts. In order to run away from the prying eyes of the anti-graft agencies, they consider it wise to put their money in stocks where it is safe and covered,” Ndata said.
The Chief Relationship Officer, Foresight Securities and Investments Limited, Charles Fakrogha, said the smooth transition of power alongside bold reforms led to the rise in market capitalisation. He also noted that the huge volumes of shares traded recently meant foreign investors might be thinking about making a comeback into the equities market.
