Investors in Nigerian stock market closed yesterday with net capital gains of N12.52 trillion for the first 10 months of the year, firmly on path to fifth year of consecutive positive returns.
Benchmark index for Nigerian equities closed October 2024 with average 10-month return of 30.60 per cent, equivalent to net capital gain of N12.52 trillion.
The All Share Index (ASI)- the value-based common index that tracks all share prices at the Nigerian Exchange (NGX), closed yesterday at 97,651.23 points as against its year’s opening index of 74,773.77 points.
Aggregate market value of all quoted equities at the NGX closed at N59.172 trillion, N18.25 trillion above the market’s opening value of N40.918 trillion for the year. The difference between the ASI’s return and market value was due to unadjusted values from additional listings, especially recent listing of Aradel Holdings Plc.
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The ASI is generally regarded as the benchmark return for the stock market. It doubles as Nigeria’s sovereign index in the global markets. Nigeria currently ranks second in global stock market returns.
The Nigerian stock market had also closed 2023 as one of the three best-performing markets globally. Average return for Nigerian equities in 2023 stood at 45.90 per cent, equivalent to net capital gains of N12.81 trillion.
With inflation rate at 28.2 per cent, Nigerian equities were distinctive as the best inflation-hedging asset class in the country. Nigeria ranked among the three world’s best-performing markets with the Nigerian market surpassing a historical record of N40 trillion market capitalisation during the year.
With four consecutive years of positive return, the stock market has shown resilience amidst macroeconomic economic challenges of foreign exchange (forex) scarcity, naira depreciation and spiraling inflation.
The market 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.
ASI closed 2023 at 74,773.77 points as against its opening index of 51,251.06 points for the year. It had opened 2022 at 42,716.44 points.
Aggregate market value of all quoted equities had also risen from 2023’s opening value of N27.915 trillion to close the year at N40.918 trillion. It had recorded N22.297 trillion as opening value for 2022.
Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe, who explained the pricing dynamics at the stock market, had noted that the market performance could only be interpreted that 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 end result of those same policies will be positive for the economy in the medium to long run, which is why we are seeing the bullish sentiments we have witnessed so far. We must also recognise that the market has the capacity to 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.
More than a double in foreign transactions and sustained upbeat by domestic investors had pushed total transactions at the Nigerian stock market to its highest level by the third quarter 2024.
Official trading report reviewed showed that total transactions at the stock market had risen to N3.97 trillion in the first nine months of this year, the highest third quarter turnover according to available official records of the market.
The 2024 performance represented a new record against the market’s turnover in third quarter 2023, when the market had set a high of N2.71 trillion. The closest records were in 2018 and 2014 when the market recorded N2.01 trillion and N2.04 trillion respectively.
The latest report also showed almost a double in the participation of foreign portfolio investors (FPIs) in the Nigerian market, a situation that analysts attributed to the attractiveness of the Nigerian stocks and the relative liquidity occasioned by foreign exchange (forex) reforms.
The proportion of participation by FPIs increased from 9.51 per cent in third quarter 2023 to 17.56 per cent in third quarter 2024, the highest in the past three years.
Total foreign transactions at the NGX grew by 170.1 per cent from N258.02 billion in third quarter 2023 to N696.88 billion in third quarter 2024, the highest in six years.
While forex differential contributed to FPIs turnover, domestic investors have also shown sustained strong appetite for quoted equities with a turnover of N3.27 trillion in third quarter 2024, higher than total transactions in previous years of the market. Total domestic transactions had stood at N2.45 trillion in third quarter 2023.
However, the increasing participation of foreign investors has reduced the proportion of domestic investors participation from 90.49 per cent in third quarter 2023 to 82.44 per cent in third quarter 2024.
Experts attributed the upbeat at the stock market to the increasing attractiveness of the Nigerian market to foreign investors, ongoing economic reforms, resilient earnings by Nigerian companies, exchange rate differential, ongoing banking recapitalisation and the reform in the oil sector.
Managing Director, AIICO Capital, Dr Femi Ademola, said Nigerian equities have become very attractive to both foreign and domestic investors.
“The equities market has become very attractive, mostly due to the devaluation of the currency which make the shares very cheap, especially to foreign investors. The very strong half-year performance reported by corporates especially banks and the corporate actions that followed the announcements have also driven many investors to the equities market. Finally, the lack of volatilities in the bond market makes it unattractive to investors, thus they flock to the equities market,” Ademola, a Chartered Financial Analyst (CFA), said.
“We’ve seen increasing return of foreign portfolio investors, I understand the turnover by FPIs has grown significantly in the last few months. This can be attributed to the weaker naira that makes Nigerian stocks a bargain for FPIs. Secondly, new listings such as Aradel also boosted investors’ appetite for stocks. This can also be seen in the light of the approval of the Exxon Mobil’s acquisition by Seplat by the Federal Government. Thirdly, the banking recapitalisation exercise along with impressive second quarter reports have continued to attract investments towards that sector,” Amolegbe said.