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By Chinwendu Obienyi and Chukwuma Umeorah
Despite historical trends of subdued market performances during election years, the bulls triumphed over the bears, resulting in an unprecedented and unstoppable rally for Nigeria’s stock market in 2023.
The domestic bourse had in 2015 (-16 per cent) and 2019 (-15 per cent) displayed negative sentiments owing to uncertainty, heated polity as well as uninspiring policies, but defied concerns about the impact of the 2023 elections as the market’s year-to-date (YTD) return stood impressively at 45.90 per cent at the close of transactions for the year.
Equities opened the year 2023 on a positive note, rising by 0.67 per cent on the first trading year. Specifically, the Nigerian Exchange Limited (NGX) All Share Index (ASI) and market capitalisation increased from the preceding day low of 51,251.06 points and N27.915 trillion (December 2022) respectively to 51,595.66 points and N28.102 trillion.
Furthermore, the market, ignoring Moody’s downgrade of Nigeria’s Eurobonds and scarcity of naira notes, closed the month with a 3.88 per cent gain with investors’ fortunes rising to N1.1 trillion. Despite uncertainties building up to the 2023 elections, the nation’s bourse surprisingly closed the last trading day of February in the green as it gained 9 per cent and N1.40 trillion.
By March, bearish sentiments pervaded the local bourse amidst the activities of bargain hunters as the stock market began to react to the weak macro-economy. However, the NGX recorded listings worth N318.52 billion on its platform in three months (Q1) of 2023, according to the exchange’s X-Compliance report.
The sentiment continued unabated as the spiralling inflation, scarcity of foreign exchange, and macro-economic challenges eroded investors’ participation in low-priced fundamental stocks listed on the exchange. This led to a loss of N1.6 trillion shaved off from the NGX market capitalisation in April.
However, investors’ positive reaction to the announcement of critical policy changes by the new administration under President Bola Tinubu, specifically on the removal of implicit energy subsidies and unification of all official exchange rate windows led to the equities hitting the biggest single day gain (+5.23 per cent) since November 2020. This set the tone for a major turnaround in the performance of the market although enthusiasm tapered off in subsequent months. Hence, there are factors which headlined the performance of the market during the year. They include:
Policy influence
Positive investor reaction to critical policy changes by President Bola Tinubu, including the removal of implicit energy subsidies and unification of exchange rates, played a significant role in driving market gains which occurred in May, June and July. In addition, strong corporate earnings, demand for blue-chip stocks and positive performance in various counters of the market led to impressive performance of the market.
Delistings and exits
The minor dent in the performance of the market was the aura of delistings and exits which occurred in the market as the harsh operating environment coupled with the FX illiquidity forced some of the companies to request for delisting processes. For instance, a total of 12 companies- especially the likes of Glaxosmithkline, PZ Cussons, Union Bank and Oando Plc went through the delisting route.
Records and broken records
After hitting the biggest single day gain (+5.23 per cent) in May, the Nigerian capital market hit a 15-year high as its ASI rose by 0.51 per cent to 66,490.34 points from 66,151.38 the previous day, surpassing the highest value of 66,371.20 recorded on the exchange on March 5, 2008. The Exchange further smashed the records by hitting its highest point ever, as its ASI crossed the 70,000 mark for the first time on November 1, 2023 and then crossed over to 74,023.27 points as at December 24, 2023.
At this level, Nigerian equities is currently ranked as the best-performing market globally, outperforming African peers – GSE (+29.7 per cent), NSE (-27.6 per cent) and JSE (+4.0 per cent) – and major developed markets – S&P 500 (+19.7 per cent), STOXX 600 (+9.7 per cent), SSE (-2.1 per cent).
Domestic participation outperforms foreign participation
With the exchange dealing with capital flight, triggered by legacy issues of foreign exchange (FX) liquidity and other macroeconomic challenges continue to take toll on foreign transactions, total domestic transactions on the bourse in 2023 hit N2.9 trillion, higher than N362.8 billion recorded by foreign transactions in the same period.
According to the November edition of the NGX report on domestic and foreign portfolio participation in equities, total domestic transactions accounted for about 84 per cent of the total transactions carried out in 2022, while foreign transactions accounted for about 16 per cent of the total transactions in the same period.
However, the report showed that domestic transactions on the Nigerian Exchange Limited (NGX) decreased by 45.3 per cent over 16 years, from N3.6 trillion in 2007 to N1.9 trillion in 2022, while domestic transactions declined by 45.3 per cent from 2007 to 2022, foreign transactions also fell by 38.5 per cent, from N616 billion to N379 billion in the same period.
As at November 30, 2023, total transactions at the nation’s bourse increased by 34.08 per cent from N220.9 billion (about $243.93million) in October 2023 to N300.7 billion (about $319.15million) in November 2023.
The November 2023 performance when compared to the performance in November 2022 (N104.28 billion) revealed that total transactions increased by 188.3 per cent.
Unclaimed dividends and ISA bill
The Securities and Exchange Commission (SEC) during the year, revealed that the total value of unclaimed dividends had risen to N190 billion in 2023.
Dayo Obisan, SEC’s Executive Commissioner Operations, disclosed this while noting that the N190 billion unclaimed dividends represent a 7.35 per cent rise from the N177 billion recorded in 2021.
As a regulator, he added that the SEC is coming up with measures to reduce the figure. “It is estimated to be N190 billion, but I think one of the most important questions to keep asking is the growth trajectory”, he stated.
According to the SEC, unclaimed dividends for 2020 and 2019 stood at N168 billion and N158.44 billion, respectively.
Furthermore, the Commission’s Director General, Lamido Yuguda, noted that ISA bill which has already passed the first and second reading at the House of Representatives and first reading at the Senate will hopefully be submitted to President Bola Tinubu for assent by the first quarter (Q1) of 2024.
“The ISA bill is capable of transforming Nigeria’s commodities market from a mono-product economy to an economy that would have a lot of commodities traded and provide a better framework for sub-nationals and international organisations to borrow from the capital market as well as Federal government agencies”, Yuguda said.
Popoola takes over as NGX Group CEO
The market was stunned as news filtered in, confirming that Oscar Onyema who had been instrumental in the growth, demutualization, and restructuring of NGX Group from the Nigerian Stock Exchange (NSE) would begin his terminal leave, leaving the door open to the young and vibrant stalwart in financial expertise and strategic leadership, Temi Popoola to fill the vacant role. Also, Jude Chiemeka known for his extensive experience in securities trading and asset management across African markets, would leave his role (Head, Capital Markets, NGX) and act as the Chief Executive Officer, NGX. Going into 2024, investors would definitely watch to see the duo bring their experience which is expected to have an impact on the capital market.
Operators’ react
Already, the market has kicked off the first trading week of the new year on a positive note, with gains recorded on all trading sessions. Accordingly, the benchmark index surged, and broke through the 79,000 points mark to record a substantial 6.5 per cent week-on-week (w/w) gain to closing at 79,664.66 points. Notably, bargain hunting in blue-chip telecommunication stocks – MTNN (+8.0 per cent) and Airtel Africa (+6.0 per cent) – underpinned the market’s performance, leading to investors gaining N2.68 trillion with NGX market capitalisation closing at N43.95 trillion. This development has led to several analysts forecasting that the market might likely hit the 80,000 mark this week.
Reacting to the 2023 performance of the market, market operators who spoke to Daily Sun via telephone, noted that the smooth handover from one government to another attracted positive investors’ sentiments and added that the market correction reforms which President Bola Tinubu introduced also resonated well with investors boosting their confidence.
Vice-Chairman, Board and Management, Highcap Securities Limited, David Adonri, said that a lot of investors heaved a sigh of relief owing to the end of the disastrous administration of President Muhammadu Buhari and added that the removal of fuel subsidy as well as exchange rate unifications and floating of the Naira resonated well with investors.
“The new administration came in, made promises, and backed it up with actions to pay off the backlog of hard currency owed foreign investors. That boosted their confidence in the market”, Adonri explained.
He bemoaned the exit and delistings from listed domestic manufacturers and multinationals, adding that shareholders’ funds have gone down the drain and the market is yet to adjust or correct their share prices.
On the outlook of the market this year, Adonri said, “I believe that also in 2024, there might be market correction in the secondary market of the equities market to bring it back to the reality of the situation when the fundamentals of the economy and of the listed companies starts becoming very clear. I think the market will sustain the tempo at the start of the year provided policies are in place to continue its sustenance”.
For their part, analysts at Cordros Securities said that they expect Nigeria’s stock market to exhibit the same resilience in 2024, albeit at a modest pace.
“We expect Nigerian equities to exhibit resilience in 2024, though at a modest pace. Our projection is that we do not expect any of our identified determining factors – an improvement in the FX space, prospects of improved macroeconomic conditions, and monetary policy direction and impact on fixed income yields – to have an outsized impact on eventual market performance.
Nonetheless, we highlight the risk of a disconnect between improvement in company fundamentals and valuation multiples and intermittent profit-taking by investors. Accordingly, we forecast 11.6 per cent positive return”, they said.
