Capital market players foresee election year turbulence, recovery


In this piece, UTHMAN SALAMI examines the performance of the stock market in 2022 and stakeholders’ expectations for this year

Despite the harsh economic environment, the Nigerian stock market was resilient, putting up a better-than-expected performance in the 2022 trading year, according to market observers.

The Nigerian Exchange posted a 19.98 per cent return in 2022, outperforming the country’s economy which advanced 2.25 per cent as of November.

The Chief Executive Officer of Enterprise Stockbrokers, Rotimi Fakayejo, said investors in the local bourse had a bumper year in terms of payout, adding that the payout system and other factors made the market a better stead, which reflected in the capitalisation and the All-Share Index.

Amid imported inflation which raised the cost of living, Nigerians increased their stock portfolio investment, which contributed to the positive performance of the local equity market.

According to data from the Nigerian Bureau of Statistics, the annual inflation rate grew for the 10th consecutive month to 21.47 per cent in November, 2022, from 21.09 per cent in October, the highest in 17 years.

Analysts attributed the surge in inflation to the increase in demand for goods and services, persistent naira depreciation, and the rise in the cost of production.

To tame the rising inflation, the Monetary Policy Committee of the Central Bank of Nigeria adopted a hawkish approach, hiking the interest rate four times in 2022 from 11.5 per cent at the beginning of the year to 16.5 per cent in November.

Market observers and operators had presumed the tight policy approach of the apex bank would drive investors from the equity market to the debt market. However, the performance of the market in 2022 proved otherwise.

The high sides

The PUNCH had reported that investors in the Nigerian Exchange gained N5.618tn between January 4, 2022, when the market opened and the close of business on December 30, 2022.

Despite the global economic risk, the Nigerian stock market’s capitalisation grew from N22.297tn as of January 4, 2022, to N27.915tn as of December 30, 2022.

In the period under review, the NGX All-Share Index grew by 19.98 per cent to 51,251.06 basis points amid volatility in stock markets across advanced countries, caused by risk assets sell-offs by investors.

Market observers who spoke with The PUNCH attributed the resilience of the market to domestic investors’ positive sentiment towards the equity market.

A research analyst at Atlas Portfolio, Olaide Baanu, said,  “Nigerian stock market has been one of the most resilient markets despite all the economic turbulence we had in 2022, coming from the external economic factors coupled with the internal ones.”

The resilience, he said, was induced by the financial performance of stocks that had good fundamentals.

He explained, “The performance has been good, given the economic environment of the country in terms of security and what has happened in the larger economy, whereby the inflation rate has been on the rise.

“When looking at the Nigerian stock, we have really not done badly. Even after the terrible things that have happened such as currency transformation, insecurity, and others, the market still remained stable.”

Market newcomers

The listing of BUA Foods Plc and Geregu Power Plc brought plum and flamboyance to the overall market capitalisation.

BUA Foods Plc was listed on the Nigerian Exchange on January 5, 2022, boosting the market capitalisation of the NGX by over N1.17tn.

It was one of the most valuable stocks on the NGX in 2022, contributing over four  per cent to the market’s capitalisation.

Geregu Power Plc, on the other hand, was the last firm to be listed on the NGX in 2022. In October, it added about N250bn to the market capitalisation of the NGX.

Meanwhile, as of the time of filing this report, the first power firm to be listed in the country’s history had added N372.5bn to the overall market capitalisation of NGX, becoming the eighth most valuable stock on the NGX with N122.5bn market cap.

The Enterprise Stockbrokers CEO explained that the Geregu Power listing had affected the market cap positively.

“If you look at it critically, the growth in the market capitalisation is more than the growth in the ASI, basically because of the addition of Geregu Power Plc,” he noted.

The Atlas Portfolio analyst, Baanu, said the new listings brought significant valour to the local bourse, noting that the two listings were “one of the reasons we have the market capitalisation still above the N26trn.

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He described it as a milestone that would birth more listings in the coming days.

Forex challenges

Forex scarcity topped the list of foreign investors’ concerns. Exchange rate volatility, which made it difficult for foreign portfolio investors to repatriate their funds, slowed down the market performance in 2022.

The PUNCH had reported that Nigeria’s foreign portfolio equity suffered a $2.08bn shortfall between 2010 and 2021.

The World Bank report titled “International Debt Report 2022”, an updated record of “International Debt Statistics” showed the foreign portfolio equity in the NGX stood at $2.153bn in 2010. The figure had reduced to only $72m by 2021.

The country’s foreign equity portfolio recorded a deficit of $1.548bn in 2019 against $1.259bn in the preceding year.

A $255m deficit was also recorded in 2020, according to a report by the Washington Bank.

A market analyst, Mr Wole Adeyeye, said even though the equity market performed very well due to the performance of the high-cap stocks and also some other stocks, “The participation of foreign investors declined significantly in the NGX from about 23 per cent to about 16 per cent this year.

He attributed foreign investors’ exit from the market to “general election fever” and forex scarcity.

“In the second quarter, if the next government showed its willingness to tackle insecurity as well as solve the forex issue, foreign investors would come in,” he asserted.

Speaking on the impact of the foreign portfolio investment decline, Baanu said the decline in foreign investors’ portfolios had affected the stock price of firms with creditable fundamentals.

“This has affected the price of high-cap stocks. The decline in the FPI has left only domestic investors to take advantage of the lower price,” he added.

On his part, Fakayejo stated that the dip was not due to the Nigerian stocks but more about the currency exchange.

He said, “We have seen the naira depreciating year-on-year. The instability in the exchange rate has discouraged a chunk of them (foreign investors).

“There has been a constant demolition in the value of our currency. For this reason, foreign portfolio investors opted out of the country just before the Covid-19 lockdown.

“They have continuously been on the exit ever since that time. Whatever is left of the portfolio right now is a situation whereby they are revolving what is already present, meaning that they sell their stock to buy another stock.”

Elections year

Market players believe the outcome of the 2023 elections may affect the Nigerian stock market, especially in the first quarter of the year.

“The first quarter might end up negatively. If the elections go well, the second quarter and subsequent will perform better.

“However, if there is a standdown or violence, the second quarter might end up badly as well. Should we have a bad election characterised by violence; the market will pay for it,” Fakayejo told The PUNCH.

Adeyeye also expressed a similar sentiment. He said, “We may not see a significant performance in the first quarter of 2023 because of elections. Many investors may not want to participate in the equity market, particularly foreign investors.”

 He, however, had a different projection for the market performance in 2023.

He said, “In next year (2023), we might see a good performance in January, where investors would have positioned themselves for dividends payment and many others may add flesh to their portfolio.”

“High yield in the fixed-income market may also encourage most investors to pitch their tents here.”

Generally, one major policy that would shape the performance of Nigerian stock in 2023 is the recently approved NGX Technology Board.

 Analysts believe the NGX Technology Board would pave the way for both big and start-up tech firms to join the local equity market and subsequently increase the overall market cap and ASI.

“With this development, we expect more tech companies to come on board. The tech industry is growing by the day in the country. We expect more of them to come in 2023,” Baanu told The PUNCH. ,

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