The rally seen in the Nigerian stock market in 2023 for the first time in an election year since 2007 is expected to continue into 2024 but at a slower pace.
The market finished last year with a return of 45.90 percent, more than double that of 2022 and the highest in three years, data compiled by BusinessDay show. The last time Nigerian stocks rallied in an election year was 2007, when the main index surged 74.77 percent to 57,990.22 basis points (bps).
Several analysts and industry watchers attributed last year’s robust performance to the reforms implemented by the President Bola Tinubu, corporate earnings and new listings on the Nigerian Exchange Limited (NGX). The reforms however failed to lure back foreign investors as inflows dropped while outflows rose as of November amid lingering foreign exchange scarcity in the country.
Investors reaped N13 trillion in capital gains as the market capitalisation of equities jumped to a record high of N40.92 trillion at the end of December.
Eight companies had a market value of at least N1 trillion at the end of last year, up from five in 2022. Seplat Energy, Zenith Bank and Guaranty Trust Holding Company joined Airtel Africa, Dangote Cement, MTN Nigeria Communications, BUA Cement and BUA Foods in the trillion-naira valuation club. The mega caps account for about 70 percent of the total market value of companies on the NGX, with Airtel leading the pack.
The NGX All-Share Index crossed the 70,000bps mark for the first time ever in November and ended the year at 74,773.77bps.
“Despite historical trends during previous election years that showed subdued market performances (2015: -16.1 percent; 2019: -14.6 percent), the local bourse has displayed an upward trajectory, defying concerns about the impact of elections,” analysts at Lagos-based Cordros Securities Limited said in their markets review and outlook report.
They said the market performance was majorly influenced by investors’ positive reaction to the announcement of critical policy changes by the new administration, specifically the removal of implicit energy subsidies and unification of all official exchange rate windows.
“We expect Nigerian equities to exhibit resilience in 2024, though at a modest pace,” the analysts said. “Our projection is that we do not expect any of our identified determining factors – an improvement in the FX space, prospects of improved macroeconomic conditions, and monetary policy direction and impact on fixed income yields – to have an outsized impact on eventual market performance.”
Highlighting the risk of a disconnect between improvement in company fundamentals and valuation multiples and intermittent profit-taking by investors, they forecast a 11.6 percent positive return for 2024.
They expect bullish sentiment at the start of this year as investors gear up for 2023 full-year financial results and dividend reinvestment.
Analysts at Afrinvest Research pointed out that the country’s equities market raced to a 15-year high in 2023 “fuelled by market-friendly reforms by the current administration and resilient corporate performance”.
“We expect the equities market to sustain the positive momentum through 2024, though at a modest pace. Our model forecasts a 14.8 percent return for the year (base case), premised on improved macroeconomic conditions, anticipated growth in foreign portfolio investments, and a more stable FX environment,” they said in a new report.
Further rate hike expected to dampen investor appetite
Bismarck Rewane, managing director of Financial Derivatives Company Limited, said in a presentation last month that the stock market will adjust to the direction of the monetary policy rate (MPR) in January 2024.
The MPR, also known as the benchmark interest rate, was raised by the Central Bank of Nigeria (CBN) four times last year to 18.75 percent from 16.5 percent at the end of 2022 in a bid to fight inflation, which quickened to a new 18-year high of 28.20 percent in November.