- Stock market positive hedge against inflation
Nigerian stock market closed the first quarter with a net capital gain of N16.30 trillion in a major rally that placed Nigeria as the world’s best-performing stock market in the first three months of the year.
Benchmark indices for Nigerian equities closed weekend with average year-to-date return of 39.84 per cent, equivalent to net capital gain of N16.30 trillion for the three-month period.
This implies that investors earned additional N16.30 trillion in capital gains in the first three months of the year, excluding other returns from dividends.
The performance of the Nigerian equities market, which closed 2023 among the three best-performing markets globally, dwarfed returns across several world’s markets.
Global stock data tracked by The Nation’s Market Intelligence at the weekend indicated that the stock market was atop the chart of the most resilient and profitable global stock markets in the first quarter.
The data included 22 of the world’s most prominent stock markets and cut across the various tiers of advanced, emerging and frontier markets. These included United States, United Kingdom, Germany, Japan, France, Hong Kong, Russia, India, Brazil, China, Thailand, Turkey, Saudi Arabia, Qatar and United Arab Emirates (UAE), South Africa, Kenya, Morocco, Ghana, Egypt and Mauritius.
The All Share Index (ASI)- the common value-based index that tracks all share prices at the Nigerian Exchange (NGX) rose from the year’s opening index of 74,773.77 points to close first quarter at 104,562.06 points.
Aggregate market value of all quoted equities at the NGX jumped from the year’s opening value of N40.918 trillion to close first quarter at N59.121 trillion, representing an increase of 44.49 per cent or N18.2 trillion. The difference between the ASI and market value was due to straight-through effect of additional listings during the period, including the listing of Transcorp Power.
United States’ benchmark indices- the Dow Jones Industrial Average (DJIA) and S & P 500, closed the period with returns of 10.1 per cent and 9.3 per cent. United Kingdom’s FTSE 100 Index recorded average return of 2.6 per cent. Japan’s Nikkei 225 Index posted average return of 20 per cent. China’s Shanghai Composite Index recorded 1.2 per cent.
Others included Germany’s Xetra DAX, 10.3 per cent; France’s CAC 40 Index, 8.9 per cent; India’s BSE Sens Index, 2.0 per cent, Brazil’s Ibovespa, -4.6 per cent; Russia’s RTS Index, 3.9 per cent: Saudi Arabia’s Tadawul All Share Index, -3.1 per cent; Hong Kong’s Hang Seng Index, -3.0 per cent; Thailand’s SET Index, 5.0 per cent; UAE’s ADX General Index, -3.3 per cent; Qatar’s DSM 20 Index, -8.2 per cent and Turkey’s BIST 100 Index, which closed with the second highest return of 21.3 per cent.
In Africa, South Africa’s FTSE/JSE ASI recorded negative return of -31. Per cent; Kenya’s NSE 20 Index, 16.7 per cent; Mauritius’ SEMDEX Index, 4.2 per cent, Morocco’s Casablanca Masi Index, 7.4 per cent; Egypt’s EGX 30 Index, 10.7 per cent while Ghana’s GSE Composite Index trailed with average return of 10.4 per cent for the period.
A breakdown of the pricing trend at the Nigerian market showed widespread positive sentiment across the sectors, with all sectoral indices closing positive. This implies that while returns may differ due to portfolio selections, investors generally saw increase in their portfolios during the period.
The NGX 30 Index, which tracks the 30 largest stocks at the stock market, closed with a year-to-date return of 39.08 per cent. The NGX Industrial Goods Index posted the highest return of 78.49 per cent. The NGX Oil and Gas Index rose by 24.09 per cent. The NGX Consumer Goods Index posted the second highest sectoral gain of 43.66 per cent. The NGX Banking Index recorded average return of 14.76 per cent while the NGX Insurance Index rose by 26.20 per cent. The NGX Pension Index, which tracks stocks specially screened for pension funds’ investments, closed the period with average return of 21.39 per cent while the NGX Lotus Islamic Index, which tracks ethical stocks that meet Islamic investment principles, trailed market’s average return with a three-month return of 37.20 per cent.
The first quarter performance set the market on the path to its fifth consecutive positive returns. Analysts at Afrinvest Securities had projected full-year average return of 14.8 per cent for the year, although they expected that new positive triggers could more than double the return. Analysts at CardinalStone said a gradual return of foreign portfolio investors (FPIs) could stimulate additional rally at the stock market, with average return expected above 35 per cent.
The market closed 2023 with average return of 45.90 per cent, equivalent to net capital gains of N12.81 trillion, one of the three highest returns globally. It had broken its well-known previous cycle of decline in pre-election year to record its third consecutive positive performance in 2022, with full-year average return of 19.98 per cent, equivalent to net capital gain of N4.455 trillion. It 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, it had recorded average return of 50.03 per cent, representing net capital gains of N6.483 trillion.
Most analysts expected the positive sentiment to continue citing the earnings season, improving macroeconomic outlook and the banking sector recapitalisation.
“We anticipate that the positive sentiment would linger in April spurred by increased corporate activities following banks recapitalisation announcement and growing foreign portfolio investment (FPI) traction into equities,” Afrinvest Securities stated at the weekend.
Analysts at Cordros Capital noted that while the increase in benchmark interest rate could intensify risk-off sentiments, earnings releases from banks and accompanying dividend declarations could trigger another wave of positive sentiments.
Managing Director, HighCap Securities, Mr. David Adonri said the performance of the market in first quarter was due to positive sentiment on the overall macroeconomic outlook.
According to him, the emergence of President Bola Tinubu had energised the stock market since market participants believe he has ability to rejig the economy and implement economy-friendly policies.
He expressed optimism that the market may sustain its positive momentum in the second quarter on the back of banking sector recapitalisation and expected corporate earnings, especially from the banks.
Chief Executive Officer, Wyoming Capital and Partners, Tajudeen Olayinka, however, cautioned that the equities market has entered a re-pricing mode because of interest rate hike and continued issuances of one-year treasury bills at high effective yield of over 20 per cent.
“So, we may be witnessing a shift to the fixed income market in the second quarter of 2024,” Olayinka said.
The overall performance of the equities market has largely been influenced by what the market described as “post-inauguration rally”, referencing the positive sentiments that have trailed the pro-market reforms of the Tinubu’s administration, since May 2023.
The NGX had stated that experts’ opinions on the strong performance of the market were that the bullish trend was 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” of Tinubu.
According to the NGX, market operators were of the view that “the policies of the new administration under President Bola Tinubu” had “led to the rise in the fortunes of investors”.
Afrinvest Securities had said “economy reform optimism” bolstered the market performance, noting that the “the rally in the market followed the promise of critical reforms by the President Bola Tinubu administration”.
Chief Executive Officer, Crane Securities Limited, Mike Ezeh said the emergence of Tinubu had further energised the market as market participants have hopes in his ability to rejig the economy and implement economy-friendly policies.
He urged the new government to continue to implement policies that would provide enabling environment for businesses to thrive, noting that this would help boost foreign direct investments (FDIs) and attract issuers to the capital market.
