Investors in Nigerian equities recorded net capital gains of more than N1.62 trillion in the first quarter of 2023 as the market rallied through intensely competitive electioneering period and macroeconomic headwinds to retain a position in world’s top-return chart.
Benchmark indices at the Nigerian Exchange (NGX) at the weekend indicated average year-to-date return of 5.82 per cent, equivalent to net capital gain of N1.624 trillion for the first three months of the year.
The market’s overall quarterly performance was, however, moderated by a massive profit-taking selloff in March, which shaved off 2.82 per cent from the market’s return.
With three consecutive years of bullish rally, the first quarter 2023 performance further strengthened the outlook for Nigerian equities, which had closed 2022 with full-year average return of 19.98 per cent, equivalent to net capital gain of N4.455 trillion.
Nigerian equities had broken their known cycle of decline in pre-election year to record their third consecutive positive performance in 2022. Nigerian equities had closed 2021 with average return of 6.07 per cent, equivalent to net capital gains of N1.278 trillion. In the throes of the outbreak of COVID-19 pandemic in 2020, Nigerian equities had recorded average return of 50.03 per cent, representing net capital gains of N6.483 trillion.
The All Share Index (ASI)- the common value-based index that tracks all share prices at the NGX, closed first quarter 2023 at 54,232.34 points as against the year’s opening index of 51,251.06 points, representing an increase of 5.82 per cent. It had closed January 2023 at 53,238.67 points. The ASI had opened 2022 at 42,716.44 points.
Aggregate market value of all quoted equities also rose from the year’s opening value of N27.915 trillion to close first quarter 2023 at N29.544 trillion, representing an increase of about 5.84 per cent or N1.63 trillion. It had closed January 2023 at N28.998 trillion. Aggregate market value of quoted equities opened 2022 at N22.297 trillion.
The near correlation in the movement of the ASI and aggregate market value, at around 5.8 per cent, underlined that the increase in market value was mainly due to share price appreciation, rather than primary market activities such as listing of new company, increase in number of shares or primary revaluation of shares.
Sectoral analysis showed that the market performance was driven by widespread positive sentiments across the sectors, especially within the consumer goods, oil and gas and banking sectors. All sectoral indices at the NGX closed positive, in a rally that saw pensioners and ethical investors recording substantial gains despite the selective nature of their investments.
The NGX Consumer Goods Index led the rally with above-average return of 19.32 per cent. The NGX Oil and Gas Index followed with above-average return of 10.45 per cent. The NGX Banking Index placed third with above-average gain of 8.50 per cent. The NGX Industrial Goods Index posted average year-to-date return of 2.21 per cent while the NGX Insurance Index rose by 1.81 per cent in the first quarter.
The NGX 30 Index-which tracks the 30 largest stocks at the exchange, closed the quarter with a return of 4.93 per cent, underlining last month’s selloffs in some of the market’s largest stocks. The NGX Pension Index- which serves as gauge for stocks that meet the more stringent investment guidelines for pension funds, rallied above-average gain of 6.35 per cent while the NGX Lotus Islamic Index- which tracks stocks that comply with Islamic finance rules, closed first quarter 2023 with above-average return of 8.79 per cent.
The NGX at the weekend stated that the market performance was a vote of confidence in the economic direction of the country noting that despite the uncertainties posed by the general elections of February 25 and March 18, the market had remained generally optimistic.
Managing Director, Arthur Steven Asset Management, Mr. Tunde Amolegbe, said the market bucked its typical impact of election- and pre-election-related unfavorable closes, a positive sign on the overall outlook for the economy.
He noted that investors also responded to the increasing inflation by playing more in the equities market because it was higher than the coupon across all sovereign bond maturities.
According to him, the market initially reacted negatively to the interest rate hike, but as long as the inflation rate doesn’t significantly decline, investors will, ultimately, come back to the stock market attracted by the prospect of a positive real return.
“According to our predictions, the equities market has so far performed well. The quarter-to-date performance of 5.82 per cent demonstrated the dominance of bullish sentiment throughout the quarter. However when compared to the first quarter 2022, which had a quarter-to-date return of 9.95 per cent, we can claim that the market underperformed comparatively.
“Since oil is the nation’s main source of foreign currency and the impact of the Russian-Ukrainian war saw oil prices rising, investors had assumed it would be a windfall for the nation and improved the reserve and import coverage ratio. So more foreign investors participated more in the market, accounting for 23 per cent in March 2022 compared with 10 per cent in February 2023.
“Another factor is that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) raised interest rates for the first time in 2022 in May, which had a negative effect on the market, as opposed to 2023, when it did so in March, the first quarter. Another explanation is that two major stocks, MTN Communications Nigeria and Dangote Cement were marked down in March 2023.
“For the elections, the market closed negative for the two previous election cycles in 2015 and 2019. However for the elections in 2023, the market broke from the conventional trend. Even after the elections, the market remained bullish, showing that inflation was good for it because it was the only place where positive real returns could be achieved when taking into account potential holding period for the returns,” Amolegbe, a former president of Chartered Institute of Stockbrokers (CIS) said.
Analysts at Cordros Group said last month’s selloffs and moderation in the prices of several stocks should spur investors’ appetite in equities. Analysts however noted that investors’ sentiments will be dependent on positive financial results releases.
“In the near term, we expect investors’ sentiments to be influenced by developments in the macroeconomic landscape and the movement of yields in the fixed income space. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings,” Cordros Capital Group stated.