Investors in Nigerian equities netted N894 billion in the days ahead of the holidays to push their returns this year to N12.4 trillion.
As preparations for the Yuletide got underway, investors also intensified bargain-hunting in what suggested that beyond the foods and frills, many Nigerians were focused on possible returns from the stock market.
Benchmark indices indicated an average year-to-date return of 44.43 per cent, implying that investors have earned N12.4 trillion in net capital gains this year.
The market had closed with a weekly gain of 2.26 per cent, equivalent to net capital gains of N894 billion.
With the inflation rate at N28.2 per cent, the rally in the stock market further strengthened the outlook for Nigerian equities as one of the world’s best-performing markets and the best inflation-hedging asset class in the country.
Nigerian equities ranked among the three world’s best-performing markets with the market surpassing a historical record of N40 trillion capitalisation during the week.
The All Share Index (ASI) – the common value-based index that tracks all share prices at the Nigerian Exchange (NGX) – closed weekend at 74,023.27 points as against its opening index of 72,389.23 points.
It opened in 2023 at 51,251.06 points. ASI had opened 2022 at 42,716.44 points.
The aggregate market value of all quoted equities also rose from the week’s opening value of N39.613 trillion to close at N40.507 trillion. It opened 2023 at N27.915 trillion, compared with N22.297 trillion recorded as its opening value for 2022.
Managing Director, Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe, said investors were reacting to the positive outlook for the economy.
“Firstly, the stock market is a forward-pricing market, meaning that it tends to adjust for consequences of policy ahead of their impact being felt on the ground.
“So, while the populace is feeling the immediate negative impact of various policies, the market is betting that the result of those same policies will be positive for the economy in the medium to long term, which is why we are seeing the bullish sentiments we have witnessed so far.
“We must also recognise that the market can correct sharply if this does not turn out to be the case.
“Secondly, we must also recognise that increasing inflation rate and the impending banking recapitalisation programme are empirically positive in terms of accretion to the stock market even if the main street may perceive them as negative in the meantime,” Amolegbe, a former president of Chartered Institute of Stockbrokers (CIS), said.
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Market analysts had said the N40 trillion mark was a psychologically important historical point for the market, referencing the tendency for a pullback that had stalled previous rallies from crossing such a threshold.
Afrinvest Securities said the N40 trillion mark was “a historical high”, underlining the general opinion among market pundits.
Managing Director of HighCap Securities, Mr. David Adonri, said the N40 trillion mark was a “remarkable record”, noting that “the market capitalisation of equities on the NGX has never crossed the N40 trillion” mark.
Futureview Group stated that the market was at an “all-time high” at N40.164 trillion.
Analysts at SCM Capital said they expected that the positive sentiment will continue in the equities market in the remaining days of 2023.
“The financial services sector is anticipated to maintain market liquidity, while fundamentally strong industrial goods stocks are projected to experience positive sentiments,” SCM Capital stated.
A breakdown indicated that investors in several sectors have earned between 60 and 125 per cent return in capital gains so far this year, underscoring the unique position of equities as the only positive inflation-hedging asset class in the highly inflationary economy.
Nigerian equities had broken their known cycle of decline in the pre-election year to record their third consecutive positive performance in 2022, with a full-year average return of 19.98 per cent, equivalent to a net capital gain of N4.455 trillion.
The equities market closed 2021 with an average return of 6.07 per cent, equivalent to net capital gains of N1.278 trillion.
In the throes of the outbreak of the COVID-19 pandemic in 2020, it had recorded an average return of 50.03 per cent, representing net capital gains of N6.483 trillion.
Market analysts and stakeholders were unanimous that the continuing rally in the stock market was boosted by renewed optimism over the economic direction of the Bola Tinubu Administration, widely regarded as investor-friendly.
The average return in the first four months of the year was 2.25 per cent or N628.1 billion.
The overall performance of the equities market this year has largely been influenced by what the market described as a “post-inauguration rally”, referencing the positive sentiments that have trailed the pro-market reforms of the Tinubu Administration since May.
According to the NGX, the strong performance of the market and the bullish trend were due to “a combination of factors, including investor sentiment influenced by macroeconomic developments such as the formation and swearing-in of the economic cabinet by President Bola Tinubu”.
The NGX had also attributed the market performance to the “audacious macroeconomic reforms under the new administration”.
Market operators believed that “the policies of the new administration” had “led to the rise in the fortunes of investors”.
Afrinvest Securities had said “economy reform optimism” bolstered the market performance, noting that “the rally in the market followed the promise of critical reforms”.
Analysts at Arthur Steven Asset Management said the equities market’s bullish momentum was “because of the new administration which tends to affect the market positively”.
“The market reacted to the high expectation from the new administration as the government promised the investors easy repatriation of their investment and profit,” Arthur Steven Asset Management stated.
Chief Executive Officer of Crane Securities Limited, Mike Ezeh, said the emergence of Tinubu had further energised the market as participants trust his ability to rejig the economy and implement friendly policies.
He urged the new government to continue to implement policies that would provide an enabling environment for businesses to thrive, noting that this would help boost foreign direct investments (FDIs) and attract issuers to the capital market.