•Naira loses 50 per cent, wipes off equity gains
•Keeps capitalisation bellow 2022 dollar value
Despite rising insecurity and a mix of macroeconomic challenges, the Nigerian equities market soared significantly last year 2023 with investors gaining N13 trillion in nominal terms.
But the gains in equities valuation, in real terms, would have been wiped by the huge haircut to the sharp naira depreciation experienced in the year.
The local currency opened the year at about N448/$ but lost over 50 per cent of its value to close at near N900/$ following the pro-market reforms implemented by the Central Bank of Nigeria (CBN).
The foreign exchange (FX) loss implies that investors in the local bourse are in negative territory in terms of the dollar value of their investments.
The current market capitalisation (N40.9 trillion) is a mere $45.6 billion or over 35 per cent less than $62.4 billion the market was worth this time last year.
On inflation analysis, the market may manage to get away with a positive real return of over 17 per cent. Recall that the headline inflation stood at 28.2 per cent as per November consumer price index (CPI) readings.
Except inflation rate (unlikely) spirals above 30 per cent in the December survey, which is not due for release till mid-January, the real rate of return on stocks would still be around 16 per cent after provisioning for inflation.
The key performance indicator of the NGX: the all-share index (ASI) rallied in 2023, in naira terms, showing third-best in the last decade trailing the 50 per cent rise in 2020 and 47 per cent in 2013 to hit 45.9 per cent.
At the end of transactions in 2023, it closed at 74,773.77 points from 51,251.06 points at which it opened trading in the year.
Similarly, market capitalisation for the period gained N13 trillion to close at N40.918 trillion, from N27.915 trillion.
Capital market analysts noted that it was a surprising and truly exceptional year, especially for 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.”
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 stressed the need for both the finance minister and Central Bank of Nigeria (CBN) governor to work with the head of government and ensure that the capital market is fully utilised to its maximum potential in bringing about funding for it is projected, especially in the areas of infrastructure in 2024.
President of Ibadanzone Shareholders Association of Nigeria, Eric Akinduro urged to increase their participation in the market by identifying and patronising stocks of companies with intrinsic value, especially at this dividend season.
According to him, with the uptick witnessed in the nation’s capital market in the past few months, there is a need for investors to leverage the current price appreciation of stocks and expand their portfolio for future capital appreciation.
“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.
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