Experts link renewed confidence to bold reforms
Amid rising insecurity, inflation and other macroeconomic challenges, coupled with uncertainty in the global economies, the Nigerian equities market gained N8.4 trillion in nine months.
Since the beginning of the year, the equities market has witnessed an unprecedented rally and buying interest across sectors, especially in the financial services, consumer and industrial goods sub-sectors, which has continued to trigger massive bargain hunting in large company shares, pushing the key performance indices and stimulating activities in the market.
Specifically, the market capitalisation gained N8.416 trillion from N27.915 trillion at the beginning of the year to close at N36.331 trillion at the end of September 29, 2023.
Similarly, the Nigerian Exchange (NGX) Limited All-Share Index (ASI) rose by 29.52 per cent from 51,251.06 points on December 30, to 66,382.06 points on September 29, 2023.
Recently released reports by the NGX on domestic and foreign portfolio participation in equities trading for September 2023 showed that foreign portfolio investors have started to increase their stake in the market.
Recall that market capitalisation rose by N5 trillion in the first half (H1) of the year, causing the NGX to hit a 16-year high for the first time since 2008, to close at 60, 108.86 on Tuesday, June 27, 2023. It opened the year at 51,251.06 on January 3, implying an increase of 8,857.8 points or 15 per cent.
Similarly, market capitalisation of listed equities, which opened the year at N27,915 trillion, closed at N32,729 trillion in the first half, representing N5 trillion or 15 per cent appreciation.
Experts argued that the seemingly bold economic reforms and a strong national economic team of the new government have spurred renewed investors’ confidence in the market.
The unprecedented rally recorded in the market since the beginning of the year also enabled companies to exhibit significant growth in various financial metrics such as profit before tax, total assets and net profit margin, with mouth watery interim dividends, especially for the tier one banks.
For instance, Zenith Bank and Guaranty Trust Holding Company (GTCO) declared an interim dividend of 50 kobo each, amounting to N15.698 billion and N14.72 billion, respectively, up from N9.42 billion and N8.83 billion interim dividends paid within the same period in 2022.
United Bank for Africa (UBA) also paid an interim dividend of 50 kobo, higher than 20 kobo declared in the corresponding period in 2022. Similarly, a look at the half-year performance of some listed firms also showed that UBA’s profit after tax rose from N70 billion in half-year 2022 to N378 billion in 2023 while Zenith Bank’s profit increased to N291 billion from N111 billion achieved in the corresponding period in 2022. GTCO increased its half-year profit from N77 billion to N280 billion. Access Bank and FBN Holdings’ profit also rose from N95 billion and N56 billion to N135 billion and N187 billion during the period.
Also, a year-to-date review of listed firm price movement performance showed that stocks across sectors have witnessed robust capital appreciation, returning double gains to investors.
For instance, MTN Nigeria has returned 29.30 per cent gain year to date while Dangote Cement rose by 24.9 per cent. BUA Foods increased by 100 per cent while Conoil witnessed a 119 per cent increase in capital appreciation.
Transnational Corporation of Nigeria garnered a 173 per cent gain while Cadbury and PZ Cussons Nigeria also returned with 50 per cent and 49 per cent gain.
The experts believed that the strategic policies and decisions of the new government would continue to impact listed firms’ financial performance across all sectors.
Analysts at Proshare said: “The key drivers of the growth of the domestic Nigerian bourse have been the steady growth of the domestic money supply, which has lubricated economic spending post-COVID-19. The money supply tap has not turned off or back since the heart of the COVID-19 era; the monetary authority continued to accommodate fiscal spending overruns through the Central Bank of Nigeria’s Ways and Means (W&M) window up until 2023 when it securitized the outstanding N22.7 trillion by converting it into a long-dated (40 years) bond at a coupon rate of nine per cent per annum.
“High extra-budgetary expenditure and rising interest rates combined to attract investors to federal bonds and bills but also saw investors take advantage of the usual growth in banking sector earnings when interest rates rise. Banks listed on the NGX have seen major price increases in the last twelve months.”
They added that the broad NGX year-to-date return has shown market resilience to pounding inflation, explaining sustained investor equities market interest.
On market outlook in Q4, the chief research officer of InvestData Consulting Limited, Ambrose Omordion urged the new government to pursue transformation reforms and policies vigorously to sustain performance.
“We expect mixed sentiment on bargain hunting and portfolio repositioning ahead of Q4 in the face of sector rotation. All eyes are on the monetary policy drive of the New Central Bank of Nigeria (CBN) Governor and his team.
“However, pullbacks are creating ‘buy’ opportunities amidst the economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer better investment direction to investors.
“We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.”
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