Amid CBN FX Reforms, 21 NGX Most Capitalised Stocks Beat Inflation Rate

Kayode Tokede

As the Nigerian equities market continue to rally following the Central Bank of Nigeria’s (CBN) foreign exchange (FX) reforms, about 70 per cent of the 30 most capitalised companies on the Nigerian Exchange Limited (NGX), have outpaced Nigeria’s inflation rate, which has surged to its highest level in more than 17 years.

According to THISDAY investigations, about 21 out of 30 companies listed stocks on the NGX-30 yield as of July 25, 2023 surpassed the inflation rate that reached 22.79 per cent in June 2023, according to data by the National Bureau of Statistics (NBS).

The inflation rate in Africa’s biggest economy rose to a new 17-year high of 22.79 per cent in June 2023 from 22.41 per cent in the previous month.

The Bola Tinubu’s All Progressive Congress (APC) led-administration and country’s monetary policymakers have since been more aggressive in recent months in curtailing multiple foreign exchange rates. The unification of foreign exchange rate have attracted more participation in stocks from foreign investors.

The nation’s headline inflation raced to 22.79 per cent in July, the highest since September 2005, from 18.60 per cent in June, according to the NBS.

The Naira now trade at N788.424 against the dollar from N448.55 at the Investors & Exporters (I & E FX) market window, with capital analysts saying the reforms have boosted investors’ confidence.

THISDAY analysis of market data showed that the NGX 30, which tracks the top 30 companies in terms of market capitalisation and liquidity, has gained 30.49  per cent Year-till-Date (YtD) to 2,404,25 basis points from 1,842.50 basis points, while the overall stock market has appreciated by 28.76per cent YtD from 51,251.06 basis points to 65,988.81basis points as of July 25, 2023.

Ananlysts belive the stock market rally started way back in November 2022, when it was obvious that the contest for Nigeria’s presidency was between the current President Bola Tinubu and the duo of Atiku Abubakar and Peter Obi.

 “It was obvious we were going to witness a possible transition from government of President Muhammadu Buhari that had public sector dominance as his economic focus, to a new regime that could favour private sector dominance.

“So, all along, market was bullish on transition, and when Asiwaju Bola Tinubu became president and started with a policy thrust that was in agreement with his campaign promises of removal of subsidy and unification of Naira exchange rate, market went agog. Market is actually bullish on President Bola Ahmed Tinubu’s policy thrust, ”said CEO, Wyoming Capital and Partners, Tajudeen Olayinka.

The domestic stock market has maintained its bullish momentum so far this year, gaining N8.02 trillion in market capitalisation as of July 25, 2023 to N35.933 trillion from N27.915trillion it closed for trading in 2022.  

Amid gains recorded, the likes of Airtel Africa Plc, Nestle Nigeria Plc, BUA Cement Plc, Flour Mills of Nigeria Plc, Guinness Nigeria Plc, International Breweries Plc, Lafarge Africa Plc, Nigeria Breweries Plc, and United Capital Plc are stocks with yield below inflation rate as of July 25, 2023.

As of July 25, 2023, Airtel Africa stock recorded a negative return of 19.27 per cent YtD to N1,319.90 per share from 1,635.00 per share. It opened for trading.

 The telecommunication giant has depreciated by N1.18trillion in market capitalisation in its YtD performance on the NGX when its market capitalisation closed July 25, 2023 at N4.960 trillion from N6.145 trillion it closed for trading in 2022.

Flour Mills of Nigeria gained 9.68 per cent to N31.15, Guinness Nigeria gained 5.34 per cent to N73 per share from N69.3 per share, while International Breweries gained 3.19 per cent to N4.85 per share from N4.7 per share it opened for trading in 2023.

NB closed July 25, 2023 at N42 per share, a marginal gain of 2.44 per cent from N41 per share it closed for trading in 2022.

Lafarge Africa gained 17 per cent to N28.00 per share from N24 per share it opened for trading this year, while Nestle Nigeria closed at N1,175.00 from N1,100.00 per share.

In addition, United capital closed July 25, 2023 at N14.90 per share, about 6.43 per cent gain from N14.00 per share it opened for trading in 2023.

Amid the bounce of a new administration and raft of changes in government policies, total foreign transactions performed by investors at the floor of the NGX grew to N145.08 billion in the first six months (H1) of 2023.

It will be recalled that the total foreign transactions in the first four months of 2023, stood at N62.18 billion owing to the hike in inflation, prolonged foreign exchange scarcity as well as uncertainties building up to the 2023 elections.

However, the domestic and foreign portfolio investment report in Nigeria’s equity trading for the month of June 2023, showed a significant improvement from early 2023 levels. The report – prepared on a monthly basis by NGX Regulation Limited, with trading figures from market operators on their Domestic and Foreign Portfolio Investment (FPI) flows, revealed that total domestic transactions on the Exchange stood at N1.306 trillion whilst total foreign transactions stood at N145.08 billion at the end of the period under review.

The report also revealed that total transactions at the nation’s bourse increased by 25.96 per cent from N322.92 billion (about $693.99 million) recorded in May 2023 to N406.75 billion (about $537.87 million) in June 2023. The performance of the current month when compared to the performance in June 2022 (N156.52 billion) revealed that total transactions increased by 159.87 per cent.

Furthermore, the total value of transactions executed by domestic investors outperformed transactions executed by foreign investors by 78 per cent. Domestic inflows and outflows stood at N180.91 billion and N180.11 billion while foreign inflows and outflows stood at N22.72 billion and N23.02 billion.

A further analysis of the total transactions executed between the current and prior month (May 2023) revealed that total domestic transactions increased by 26.34 per cent from N285.76 billion in May to N361.01 billion in June 2023. Similarly, total foreign transactions increased significantly by 23.09 per cent from N37.16 billion (about $79.88 million) to N45.74 billion (about $60.49 million) between May 2023 and June 2023.

The report also revealed that institutional investors outperformed retail investors by 32 per cent whilst a comparison of domestic transactions in the current and prior month (May 2023) revealed that retail transactions increased by 40.70 per cent from N88.50 billion in May to N124.52 billion in June 2023. Similarly, the institutional composition of the domestic market increased marginally by 19.89 per cent from N197.26 billion in May 2023 to N236.49 billion in June 2023.

Over a 16-year period, domestic transactions decreased by 45.30 per cent from N3.556 trillion in 2007 to N1.945 trillion in 2022 whilst foreign transactions also decreased by 38.47 per cent from N616 billion to N379 billion over the same period. Total domestic transactions accounted for about 84 per cent of the total transactions carried out in 2022, whilst foreign transactions accounted for about 16 per cent of the total transactions in the same period.