By Chukwuma Umeorah
Nigerians are trying to solve a puzzle. The stock market, since the inauguration of Bola Tinubu as President, has been on an impressive run, breaking records upon records.
But so is widening poverty and inflation. They have maintained a steady climb and many are finding it hard to establish the nexus between a bloomy stock market and a gloomy economy.
Nonetheless, data obtained from the Nigerian Exchange Limited (NGX) website reveals that the market witnessed a 45.9 per cent growth in 2023 and in the first month of 2024, the market is currently on a 36.95 per cent growth rate with a market capitalization of N56.03 trillion as at close of trade on Friday January 26, 2024.
This means that investors’ wealth has grown from N665.98 billion recorded as at January 2, to about N14 trillion (January 26) and is expected to improve in the next couple of days.
Similarly, the All Share Index (ASI) which opened the year at 74,773.77 basis points has now reached 102,401.88 points. This, according to market analysts, has come as a result of policies as well as anticipated economic growth outlooks.
Hence, despite being regarded as the poverty capital of the world, with over 133 million people (63 per cent) grappling with multi-dimensional poverty, the nation’s stock exchange is showcasing one of the world’s best-performing markets.
However, this has sparked suspicions and raised concerns within financial circles about potential market manipulation and whether the impressive numbers reflect a genuine economic boom or are merely a mirage or titllating illusions designed to conceal underlying malaises.
Some believe that the stock exchange, which is supposed to be the health guage of the economy does not reflect the reality on ground as Nigeria boasts one of the world’s best-performing stock markets, yet the nation grapples with rising poverty, raging inflation nearing 30 per cent, FX challenges, delisting companies, and an overall economic downturn.
Addressing the apparent disparity between a soaring stock market and the country’s suffocating economic challenges, former President of the Chartered Institute of Stockbrokers (CIS) and Chief Executive of Arthur Steven Asset Management Limited, Olatunde Amolegbe, at the January 2024 forum of the Capital Market Correspondents Association of Nigeria (CAMCAN) held recently in Lagos, titled: “Review of 2023 market performance and outlook for 2024”, provided insights into the market’s forward-looking nature.
Dispelling notions of manipulation in the figures, he explained that the ongoing bullish run on the NGX with regular increase in stock prices was a reflection of future value. He noted that stock prices not only reflect current conditions but also anticipate future policy consequences.
“The Exchange is both a spot market and essentially a futures market. So, the stock prices are also reflecting what analysts and stockbrokers expect to be the consequences of policies in the future, not necessarily now. What we are seeing now is that the perceived future is being priced into stock prices now because the market will typically not wait before reflecting into stock prices.
The removal of subsidies, for instance, may have led to inflation and immediate hardships dragging more Nigerians into the poverty net. However, the market is pricing in the expected long-term benefits such as increased government revenue, lower borrowing, and infrastructure development”.
However, he explained that if these expectations are not met in the future, the stock market will also re-price to reflect reality.
In his projection for 2024, Amolegbe said factors likely to influence market performance are; budget deficit financing, proposed recapitalization, FX stability, corporate earnings inflation targeting, sustained risk separation, privatization and commercialization of government entities. Recommending a strategic approach to portfolio management, he suggested that investors should consider leaning towards equities in the first half of the year to mitigate the potential negative impact of inflation and interest rate fluctuations.
“Investors should be wary of the likely impact of inflation and interest rate on their portfolio and should inoculate the portfolio by leaning towards equities in the first half of the year while watching out for how interest rates react to likely macroeconomic realities,” he urged.
A United States-based economic expert, Prof. Ndubuisi Ekekwe, also argued that the growth in the stock market was in naira terms as there was no substantial growth when benchmarked with the dollar and other global currencies.
Referencing a post made on X titled: “In eight months of Tinubu administration, Nigeria’s stock market”, written by Bayo Onanuga, the Presidential aide on Information and Strategy, Ekekwe noted that the NGX has been growing on absolute naira, but not on the real.
He said: “Inflation has made many people poorer and depressed the overall value of the stock market. That is why foreign investors are not coming for that 45 per cent gain because if you made 45 per cent on equity, but lost 50 per cent on currency, with 30 per cent on inflation, you are poorer.”
Ekekwe highlighted that inflation had eroded the overall value of the stock market, making it less appealing to foreign investors who might be wary of currency fluctuations.
He also expressed concerns about the stock exchange’s over-concentration on power and risk. He pointed out that 10 companies out of the 155 listed equities controlled more than 70 per cent of the total market capitalization, raising questions about the diversity and stability of the market.
In their intervention, analysts at Futureview Research, in an emailed note, urged investors to have a discerning eye despite the boom in the market. They further stressed that concerns about a potential market bubble may rise due to speculative trading and encouraged investors to trade cautiously.
“Concerns about a potential market bubble arise as asset prices, such as stocks, surge beyond intrinsic values due to speculative trading. In this evolving financial landscape, equities investors face both opportunities and challenges, prompting a cautious approach. Recognizing signs of a bubble and navigating uncertainties is crucial to portfolios,” they said.