Despite Economic Headwinds, Stock Market Investors Gain N11.14 Trillion in 11 Months

*Positive corporate earnings, reforms driving rally 

*Analysts express mixed reactions over impending banking sector recapitalisation

Kayode Tokede

Despite the challenges confronting the Nigerian economy, local and foreign investors continue to reap robust returns on their investments in the stock market as the equities’ arm of the Nigerian Exchange Limited (NGX) appreciated by N11.14 trillion in market capitalisation in the past 11 months of 2023.
Specifically, the market capitalisation increased to N39.052 trillion as of November 30, 2023, representing an increase of 39.9 per cent or N11.14 trillion, compared with the N27.915 trillion it closed on the last trading day in 2022.

Also yesterday, some capital market analysts expressed mixed reactions over the Central Bank of Nigeria’s (CBN) disclosure of the plan to recapitalise the banks so as to meet the federal government’s $1 trillion Gross Domestic Product (GDP) growth target within the next three years.
The NGX All-Share Index (ASI) increased to 71,365.25 basis points as of November 2023, from 51,251.00 basis points when the market opened in 2022, representing an increase of 39.25 per cent or 20,114.19 basis points.

The 39.25 per cent return recorded by investors came on the backdrop of double-digit inflation rate, insecurity, low consumption power, among other macroeconomic challenges and global uncertainty.

Since the beginning of the year, the stock market segment of the Exchange has witnessed an unprecedented rally and buying interest, especially in the banking and oil & gas sub-sectors which have continued to trigger massive bargain hunting in fundamental stocks such as Dangote Cement Plc, MTN Nigeria Communication, BUA Foods Plc, Guaranty Trust Holding Plc, among others.
This has pushed the key performance indices and stimulated activities in the market, a development that has led to the rating of the stock market as one of the best-performing markets in Africa.

The All-Share Index, an index that tracks the general market movement of all listed stock on the Exchange, including those listed on the Growth Board, regardless of capitalisation crossed the 70,000 mark in November 2023, to close at 71,365.25 basis points.
The new listing on the Exchange played a significant role in the NGX ASI all-time high record as   the stock market continued on a positive trajectory under President Bola Tinubu.

The likes of MeCure Industries Plc, VFD Group, Nigeria Infrastructure Debt Fund (NIDF) and Africa Plus Partners added to the stock market’s positive trajectory in the period under review.
Sectorial performance on the Exchange was positive and leading the chart was NGX Oil/Gas sector.
For instance, the NGX Oil/Gas Index closed November 2023 at 1,046.66 basis points, representing an increase of 126 per cent from 462.48 basis points the stock market opened for trading.

NGX Consumer Goods Index came second after gaining 93.9 per cent, closing November 2023 at 1,141.95 basis points from 588.93 basis points it opened in 2023, while NGX Banking appreciated by 79.17 per cent to 748.05 basis points from 417.5 basis points it closed 2022.
Commenting on the stock market performance, the CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka, in a chat with THISDAY, said the federal government policies and market expectations triggered the bullish market performance.

According to him, “The tempo around bullish sentiments will remain in the remaining part of the year and beyond, as more companies get listed on the Exchange and as additional shares are listed by existing companies who may wish to raise money at lower cost of capital.”

He added that the high yield environment in the fixed income space, in line with CBN’s resolve to attract foreign portfolio investments with high interest rate, may cause some temporary moderation in aggressive price movement in December 2023 trading activities.
On his part, the Vice President of Highcap Securities, Mr.  David Adonri, said the gain reported by the stock market in 11 months of 2023, was due to the impressive corporate earnings of listed companies.

He stated that most investors took advantage of the cheap prices of some fundamental stocks listed on the NGX.
He added that the overall market performance was driven majorly by sentiment arising from the smooth handover and Tinubu’s bold economic policy on foreign exchange.

Meanwhile, capital market analysts have expressed mixed reactions over the CBN’s move to recapitalise the banking sector.
CBN Governor, Mr. Olayemi Cardoso, had while speaking at a forum organised by the Chartered Institute of Bankers of Nigeria in Lagos, last week, said: “Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future?
“In my opinion, the answer is “No!” unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital.”

Since Cardoso made the announcement, the NGX Banking Index between November 27, 2023 to November 30, 2023, has depreciated by 0.91 per cent from 754.95 basis points to 748.05 basis points it closed last month.
A check by THISDAY revealed that Zenith Bank Plc, followed by United Bank for Africa Plc. and Access Holdings Plc. had the highest total equity as of nine months ended September 30, 2023.

For instance, Zenith Bank closed September 30, 2023 with N1.9 trillion total equity, from N1.31trillion reported in 2022, while UBA declared N1.78 trillion total equity as of September 30, 2023, from the N922.1 billion reported in 2022 full financial year.

In addition, Access Holdings announced N1.64 trillion total equity as of September 30, 2023 from N1.23trillion reported in 2022.
The CBN in 2004 had directed banks to raise their minimum capital base from N2 billion to N25 billion with effect from 2005. The exercise then led to a remarkable reduction in number of banks from 89 to 24.

Reacting to pronouncement by Cardoso that banks should gear up for recapitalisation, Nigeria’s first professor of capital market, Prof. Uche Uwaleke in a chat with THISDAY, welcomed plan to recapitalise the banks, stressing that capital was needed to finance big-ticket projects especially when the government was targeting a $1 trillion economy in a few years’ time

Uwaleke added: “I think the strategy should be somewhat different from the approach adopted in 2005. It should be more about incentives than coercion.”

He said some banks, especially FBN Holdings Plc. Access Bank Plc, Zenith Bank Plc, Guaranty Trust Holding Plc, and United Bank for Africa Plc (UBA) were already making efforts to increase their capital base.

He added that “The CBN can use prudential guidelines to strengthen the present tiered arrangements. The use of the CAR (the ratio of a Bank’s capital to risk weighted assets) is a good example.

“The apex bank can also use differential cash reserve requirements as well as preferential participation in the forex market for well capitalised banks as some of the incentives.

“For whatever it is worth, smaller banks playing at the regional level should not be regulated out of existence.”

On his part, Olayinka, said, “Since new capital requirement is not yet known to the banks, it is too early to expect weird reactions to the plan, more so that CBN intends to engage stakeholders in a robust discourse before coming up with any figure.

“So, market is yet to pick up serious reactions to the plan.”

Also, Adnori said the banking stocks listed on NGX were over capitalised and the announcement by CBN governor has not impacted on their stock prices appreciation.  

According to Adnori “the investors have not reacted to announcement by CBN governor. The listed banks on the NGX are highly capitalised and they are not deficient in capital adequacy. Most of the big banks are overcapitalised. The windfall during the unification of exchange rates increased their total equity because they generated huge profit.

“A lot of listed banks are overcapitalised and investors are not seeing another benefit in increasing the capital base of these banks as of now. For now, investors have not reacted positively or negatively to the announcement by the CBN governor.”  

A capital market analyst and stockbroker, Mr. Charles Fakrogha, also welcomed the banking sector recapitalisation, stressing that the exercise is long overdue.

He, however, said rather than CBN recapitalising the sector, the apex banking regulating body could have strengthened the sector’s corporate governance.

Fakrogha added, “Financial sector, most especially the banks have always dominated the stock market. Most Tier-1 and Tier-2 banks have exceeded whatever consideration the CBN may be considering right now.

“N25 billion of it is now N2.5 billion looking at the exchange rate. Having direct impact on the stock market is what we cannot say right now.

“On a personal note, it is not about the recapitalisation that is the main issue affecting the sector but corporate governance and running these banks ethically.

“It is corporate governance issue that CBN should be looking at right now. Let’s have professionals running our financial institutions and let the apex bank be up and running with their operations.”