The Nigerian Exchange Limited (NGX) has emerged as one of the best-performing exchanges in Africa during a 3-month duration.
Investors’ confidence in Nigeria’s stock market has remained strong despite concerns about soaring inflation, interest rate hikes, and weak macroeconomic indices.
In a statement made available by the NGX, according to African markets, a website tracking the performance of exchanges in Africa, the Ghana Stock Exchange (+22.84%) emerged first while NGX (+19.33%) emerged second on the list, followed by Malawi stock exchange (+15.79%).
15-year high
This development has pushed the market to its 15-year high on the back of strong positive sentiments, as the market capitalization 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%.
Favorable policies
The bullish trend can be attributed to investors’ jostling for low, medium, and high-capitalized stocks across some major sectors amid favourable policies introduced by President Bola Tinubu’s new administration such as the removal of fuel subsidies, unification of exchange rate, investors’ strategic positioning themselves and taking 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.
What the analysts are saying:
Analysts at the United Capital in their H1 2023 review and H2 2023 outlook report said that keeping in view that two key factors which have kept the development of the real sector suppressed (elevated interest rate and foreign exchange losses), they expect the new policies of the new administration particularly the “Unification of the exchange rate”, and “Advocacy for a Lower Interest rate Environment” to stand as a significant upside for the earnings performance of listed Nigerian corporates, which will bolster investors’ confidence toward listed corporates, particularly in earning seasons (H1-2023, and Q3-2023 earnings season).
“Overall, we anticipate a broadly favourable market for the Equities Market in H2-2023, supported by the above expectations.
For the fixed-income market, we believe the new administration’s objective to dampen the interest rates environment will continue to provide enough incentive for the CBN to leave the financial system mostly liquid, in a bid to stimulate activities in the real sector.
The MPR and improved foreign participation are two strong factors to determine the trend of yields from the mid-long end of the curve.
That said, we forecast that the equities market will be the most favourable market segment for both foreign and local investors.
A strong incentive will be the cheaper Naira, removal of multiple taxations, and easy repatriation of FX by foreign investors,” they said.
Reacting to the performance of the market, 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”.