Implications, Prospects of Stock Market at 70,000bps Historical Record  

As  the All Share Index of the Nigerian Exchange crossed the 70,000 basis points recently, which was an all-time high index in the market, Kayode Tokede writes on its implications and prospects for investors and the Nigerian economy at large

It is no longer news that the stock market of the Nigerian Exchange Limited (NGX) recently  crossed 70,000 basis points, marking an all-time high. The significant growth sent excitement across the financial sector home and abroad.

Also, the market capitalisation stood at N38.778 trillion as of October 31, 2023, another milestone record, driven by investors’ renewed interest in some fundamental stocks, quoted on the Exchange.

Closing November 1, 2023, at 70,581.76 basis points means the stock market has gained 37.7 per cent Year-till-Date (YtD) from 51,251.06 basis points it opened for trading this year and it comes on the backdrop of new listings, investors taking a position in cheaper medium- large capitalised stocks, amongst which are; Airtel Africa Plc, MTN Nigeria Communication Plc, Geregu Power Plc, Zenith Bank Plc, Guaranty Trust Holding Company Plc, Nestle Nigeria Plc, among others.

Also, impressive third quarter (Q3) corporate earnings, most especially the Oil & gas, Banking, and Cement producing companies helped to boost the market indices growth.

What is Driving the Stock Market Growth?

Since resuming office on May 29, President Bola Tinubu’s government announced foreign exchange liberalisation, and subsidy removal, two major components welcomed by the World Bank and the International Monetary Fund (IMF), among other international agencies.  

The stock market has been on an upward trajectory since the entry of the new administration but it comes with a heavy price as the Naira at the Investors & Exporters Foreign Exchange (I & E FX), and parallel market rates have depreciated significantly, while prices of goods and services have also doubled.  

Take for instance, Naira at the I & E FX window closed on October 31, 2023, at N824.99/$ from N461.42 /$ as of June 1, 2023, the following day the government announced the liberalization. The inflation rate reached 26.72 per cent as of September 2023 from 22.41 per cent in May 2023, according to the National Bureau of Statistics (NBS).

Amid foreign exchange policies, foreign investors and high network investors have positioned in large capitalised stocks and invested in key listed companies in the Oil & Gas, Banking, Industrial, Fast Moving Consumer Goods, and Telecommunication sectors.  

 Stock Market Key Drivers

As of November 1, 2023, the stock price of Dangote Cement has gained 26per cent YtD to N328 per share, while Airtel Africa rose by nearly four per cent YtD to N1,694.10 per share.

The stock price of MTN Nigeria Communication increased by 14.4 per cent YtD to N246 per share, as the stock price of BUA Cement closed November 1, 2023, at N107 per share, an increase of 9.5 per cent YtD from N97.75 per share.

In the banking sector, the stock price of Zenith Bank rose by 43.3 per cent YtD to N34.4 per share as United Bank for Africa closed November 1, 2023, at N21 per share, representing an increase of 176 per cent YtD from N7.6 per share stock opened for trading this year.

Also, GTCO’s stock price hit N35.4 per share as of November 1, 2023, from N23 per share (54 per cent increase) as Stanbic IBTC reported IBTC’s stock price rose by 124 per cent to N75 per share, representing an increase of 124.22 per cent YtD from N33.45 per share it opened for trading in 2022.

These companies have maintained stronger corporate earnings and interim dividends to shareholders. Although the growth of these companies does not guarantee prosperity for investors, it does signify global recognition of Nigeria’s vast potential.

The hope is that this extraordinary accomplishment will lead to improved living standards for Nigerians and bolster economic stability for the nation and domestic investors at large.

Operators Positioned on Stock Market Performance

The stock market has outperformed foreign analysts’ downgrade over foreign exchange challenges which is a new source of negative sentiment that is capable of triggering stock sell-off at the Exchange.

FTSC Russell and MSCI Nigeria Indexes lately have warned foreign investors against Nigeria’s stock market.

FTSE Russell in September 2023 downgraded the Nigerian market on the backdrop of Nigeria’s foreign exchange crisis, while MSCI Nigeria Indexes has announced plans to reclassify the Nigerian market from frontier markets to standalone markets status in one step coinciding with the February 2024 index review.

According to the American finance company, “Since March 2020, liquidity challenges in the Nigerian foreign exchange (FX) market have consistently affected the accessibility of its equity market, leading to ongoing capital repatriation concerns and a significant gap between the official and parallel exchange rates for the Nigerian Naira. This has caused international institutional investors to face recurring challenges with index replicability and instability of the MSCI Nigeria Indexes and other indexes they are part of.

“On June 22, 2023, MSCI announced that feedback from market participants obtained as part of the initial consultation conducted from June 2022 to June 2023 suggested that the limited accessibility of the Nigerian equity market would warrant the removal of the MSCI Nigeria Indexes from the MSCI Frontier Markets Indexes. However, MSCI extended the consultation period to September 29, 2023, to allow more time for the liquidity situation in the Nigerian FX market to stabilize following measures announced by the Central Bank of Nigeria on June 14, 2023.

“No significant improvements in FX liquidity were observed by market participants during the extended consultation period, confirming that the ease of capital inflows and outflows in the MSCI Nigeria Indexes is not to the standards expected from Frontier Markets. This has led to MSCI’s decision to reclassify the MSCI Nigeria Indexes.

“To facilitate index replicability at the time of the reclassification, MSCI will delete each Nigerian security from the MSCI Frontier Markets Indexes at a price that is effectively zero as of the close of February 29, 2024. More information on this and other details related to the implementation of the reclassification will be shared at a date closer to the reclassification,” the report by MSCI Nigeria Indexes added.

While investor sentiment suggests that the Nigerian stock market’s recent peak is not a mere flash in the pan, experts stress the importance of ongoing stability, security, and continued economic reforms. The historic high of the Nigerian stock market has created ripples in the global financial arena, with investors keenly observing the nation’s economic trajectory.

The CEO of Wyoming Capital and Partners, Mr. Tajudeen Olayinka said the stock market growth is a sign of renewed confidence in the ongoing effort of President Bola Tinubu’s led government to restore equilibrium to the economy.

On the implications, Olayinka highlighted that more investors, local and foreign, will begin to do a review of the market to streamline their participation interests. He noted that the growth is expected to bring back confidence in the economy.

“It will help public companies to be able to raise money at a lower cost of capital; It will improve wealth and purchasing power of investors and help improve liquidity in the market,” implications  Olayinka highlighted.

The Managing Director, of Morgan Capital Securities Limited, Mr. Rotimi Olubi, said the remarkable gains recorded in the stock market can also be attributed to the release of impressive third quarter (Q3) 2023 earnings results by various companies, fueling positive investor sentiment.

“Additionally, the implementation of policies aimed at stabilizing the foreign exchange market has garnered favorable reactions from investors.

“This upsurge is expected to bolster investor confidence in the Nigerian equities market, further increasing the already substantial domestic investor participation rate, which stood at 90.49 per cent YtD as of September 2023, compared to 83.70 per cent YtD in 2022FY. Furthermore, this market performance is likely to result in greater wealth accumulation for investors who have positioned themselves in high dividend-yielding stocks.

“The resilience of the Nigerian equities market in the face of significant economic challenges is a testament to the forward-looking and optimistic nature of investors. Looking ahead, we anticipate the market to continue on this positive trajectory, driven by ongoing positive earnings releases.

“However, rising yields in the fixed income space could pose a risk to this outlook. Hence, we recommend that investors focus on fundamentally sound stocks in sectors such as banking, oil and gas, and industrial goods.”