Against a backdrop of heightened insecurity and a medley of macroeconomic obstacles, the Nigerian equities market exhibited a noteworthy upswing in the year 2023, yielding investors a substantial N13 trillion in nominal terms.
However, the improvements in equities valuation, in real terms, could have been diminished by a substantial haircut due to the pronounced depreciation of the naira observed throughout the year.
Commencing the year at roughly N448/$, the local currency witnessed a significant devaluation, diminishing by over 50 percent to close in proximity to N900/$, a result of the pro-market reforms instituted by the Central Bank of Nigeria (CBN).
The foreign exchange (FX) loss indicates that investors in the local bourse are positioned in negative territory concerning the dollar value of their investments.
At N40.9 trillion, the current market capitalization is only $45.6 billion, indicating a reduction of over 35 percent compared to the market’s value of $62.4 billion at the same time in the previous year.
Analyzing inflation, the market could potentially secure a positive real return exceeding 17 percent. It’s worth noting that the headline inflation registered at 28.2 percent, according to the November Consumer Price Index (CPI) readings.
Unless an improbable spike in the inflation rate to above 30 percent occurs in the December survey, slated for release in mid-January, the real rate of return on stocks is anticipated to remain approximately 16 percent after factoring in inflation.
The primary performance indicator for the NGX, the All-Share Index (ASI), demonstrated a substantial upswing in 2023, expressed in naira terms, positioning as the third-highest performance in the past decade. This trails the 50 percent surge in 2020 and the 47 percent increase in 2013, culminating in an impressive 45.9 percent.
Wrapping up transactions in 2023, the All-Share Index settled at 74,773.77 points, a significant upswing from the initial 51,251.06 points observed at the beginning of the year.
Described as a remarkable year by capital market analysts, it was notably surprising and truly exceptional, particularly within the financial markets.
Having started the year at a snail’s pace, Nigerian equities ascended to a 15-year high, marked by the influx of impressive corporate earnings reports by listed firms.
The improved earnings churned out by quoted companies despite the gloomy economy impacted the market positively at a time the rising inflation has left fixed income market instruments in negative real returns.
The strong numbers came majorly from the service-oriented companies on the exchange, cutting across banking, insurance, energy, power, agribusiness, construction, and aviation service companies.
In addition, positive sentiment arising from the smooth handover and President Bola Tinubu’s bold economic policies reinvigorated investors’ confidence in local tickets.
The positive market sentiment was evident across several sectoral indices, including NGX Oil and Gas index with a yearly gain of 125.54 per cent. NGX Banking index rose by 114.9 per cent, while NGX Consumer Goods index appreciated by 90.39 per cent year-on-year (Y/Y).
NGX Insurance index rose by 84.48 per cent, while NGX Industrial Goods index grew by 12.86 per cent Y/Y.
Reviewing the equities market for 2023, Cordros Capital Limited said: “Despite historical trends during previous election years that showed subdued market performances, the local bourse has displayed an upward trajectory, defying concerns about the impact of elections.
‘Peculiarly, the buck in the trend was majorly influenced by investors’ positive reaction to the announcement of critical policy changes by the new administration, specifically the removal of implicit energy subsidies and unification of all official exchange rate windows.’
‘We highlight that most of the gains recorded, augmenting the bullish proceedings from upbeat corporate earnings, strong demand for blue-chip companies, strong share price performances in BUA Food and Geregu Power, and market action on Transnational Corporation driven by major shareholding acquisition and thereafter consolidation of stake holding by the major shareholder, Heirs Holding Limited.’
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Chief Executive Officer of Crane Securities Limited, Mike Ezeh, noted that the emergence of President Bola Tinubu further energised the market since market participants have hope in his ability to rejig the economy and implement economy-friendly policies.
‘The elections came and were hitch-free against all unification of the multiple exchange rates, review of monetary and fiscal policies, shake up of major changes carried out at the apex bank and its overflow down to the deposit money banks across the country brought stability to the market.’
‘The commissioning of the first indigenous private refinery which has a cyclical effect on both upstream and downstream operations of petroleum companies quoted in the market propelled the interplay in the market by some high-net-worth investors on many quoted companies resulting in high turnover in trading volumes of those companies leading to the significant increase in market capitalisation within the period,’ he said.
Ezeh emphasized the imperative for collaboration between the finance minister, the Central Bank of Nigeria (CBN) governor, and the head of government to fully harness the capital market’s potential for securing projected funding, particularly in infrastructure, throughout 2024.
Eric Akinduro, President of Ibadanzone Shareholders Association of Nigeria, emphasized the importance of shareholders increasing their participation in the market by identifying and favoring stocks of companies with intrinsic value, especially during the dividend season.
With the observed improvement in the nation’s capital market over the past few months, he underscored the necessity for investors to take advantage of the ongoing stock price appreciation and enhance their portfolios for anticipated future capital growth.
‘Looking at what is happening presently we can confidently say that the market will have good potential in the year to come. The indices seem good. One thing about our market is that our prices are very low when compared with other capital markets even in Africa.’
‘It is now left for investors to key into the market earlier to enjoy both price appreciation and good dividend payment. There is a lot of improvement in the market currently that will attract more investment opportunities in the coming year,’ he added.