By 9am last Friday, economists in the country were in joyous mood as the Nigerian Bureau of Statistics reported that the economy had grown by its second highest quarterly rate since 2016. While this is a positive news for the government after fears that a border closure and a pick up in inflationary trends in the country may hurt economic growth performance in the third quarter of 2019 proved to be wrong, the 2.28 percent growth in the economy was greeted with zero excitement at the stock market.
Although the stock market closed positive on Friday (for the fourth consecutive trading day), the All Share Index rose by only 0.44 percent as news on the economic growth failed to significantly spur demand pressure in the local bourse. A closer look at the stock market performance in the days leading up to the economic announcement showed that investors may have been anticipating a good economic performance as the stock market rose for three consecutive days leading up to the announcements.
However, not every economist is of the opinion that the stock prices are fully reflecting changes in economic fundamentals.
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“A lot has changed in the economy in the last 2 weeks and we are not seeing it fully reflected in the stock market just yet,” said Obinna Uzoma, chief economist at EUA Intelligence. “In my opinion, the stock market still has a lot of room to climb higher. The low economic growth rate masks a lot of fantastic and surprising things going on in the economy right now. For example, the oil sector is growing twice as fast as the overall economy this year which is better than expected but the oil and gas index has declined -21.9% year to date,” Uzoma said to BusinessDay
The oil sector average growth rate this year moved to 4.07 percent, higher than the 2.17 percent average growth achieved by the overall economy so far this year. After suffering a sector decline in Q1, recording a negative growth of -1.46 percent, the oil sector bounced back recording 7.17 percent in Q2 and 6.49 percent in Q3. However, oil stocks have declined steadily during the year.
“I think we may see better performance in the market next week, we have already seen that the last 2 weeks have been better than the past few months in the stock market. As more and more positive stories enter into the market, it very likely that the stock market will continue to rise till late December. This could really be the start of a santa rally, we just have to be patient with the market,” said Tochukwu Okafor, a Lecturer in Finance at Covenant University.
