…motivation to do it again in 2024 intensifies as ASI hits record highs
The Nigerian Stock Exchange’s (NGX) 2023 performance is still much talked about amongst investors and capital market analysts in Nigeria, and the motivation to do it again in 2024 has earned something of a “clarion call” from the investing public.
The flagship market for raising long-term funds boasts the presence of billion-naira indigenous and foreign companies that rallied the market to hit record highs in 2023.
The presence of companies like Dangote Group and its affiliates, Bua Group, MTN Nigeria, UBA, Transcorp Hotels, and the more than 30 listed companies performed exceptionally well during the past year, and perhaps their performance will be an attraction for institutional and retail investors looking to acquire wealth, expand their current investment portfolio, or just hedge their investment against inflation and foreign exchange risk.
The record high of 76,000 bsp in the all-share index at the close of trading on the last day of trading shows the strength of buying power among Nigerians both at home and in diaspora, despite the several strong macroeconomic headwinds that characterised the early periods of President Bola Ahmed Tinubu’s administration.
Undeterred by the exit of some big multinational companies such as Proctor & Gamble and GSK, the rallying numbers on its All Share Index only ended up baffling the most hardcore pessimist investors about the future of one of the most promising stock exchanges in the world and perhaps on whose back the economic recovery of an ailing Nigerian economy is counting on.
2024 has started where it stopped in 2023, with the ASI hitting a milestone of 79,000 bps at the close of trading on Friday, January 5, a welcome development for investors to expect greater things in one of the world’s fastest-growing stock market.
Before investors could catch their breath, the market set another record by crossing the 80,000 bsp mark at the close of trading on Tuesday.
Apparently, the confirmatory appointment of Temi Popoola as NGX Group CEO and the unattractive previous-year coupon and interest rates of fixed-income assets will perhaps draw more investors into the Nigerian Stock Exchange this year.
A StatiSense January 1, 2024 tweet capturing the performance of the Nigerian Stock Exchange with a simple illustration of what the returns would be if an investor bought shares worth N100,000 in some selected listed companies has been nothing but mind-blowing.
According to their shared tweet, if you invested N100,000 on shares of any of the top 25 listed companies on January 3, 2023, you would have made at least more than 300 percent returns on your investment. This may be perhaps one of the best and biggest returns to date in the history of the Nigerian capital market and one of the best in the world.
Their tweet read, “₦100,000 INVESTED IN STOCKS ON 3 JAN 2023 – TOP 25 STOCKS NOW WORTH (as at 29 Dec 2023): 1 Transcorp Hotel: ₦1.12m 2 CHAMS Plc: ₦895K 3 Computer Warehouse: ₦822K 4 Transcorp Plc: ₦766K 5 MRS: ₦745K 6 NNFM: ₦740K 7 Japaul Gold: ₦607K 8 Ikeja Hotel: ₦571K 9 FTNCOCOA: ₦510K 10 SKYWAY: ₦507K 11 NASCON: ₦484K 12 INFINITY: ₦472K 13 Multiverse: ₦467K 14 DAARCOMM: ₦450K 15 NAHCO: ₦397K 16 GOLDBREW: ₦389K 17 OMATEK: ₦380K 18 SUNUASSUR: ₦379K 19 INTENEGINS: ₦366K 20 DANGSUGAR: ₦355K 21 UBA: ₦338K 22 NSLTECH: ₦336K 23 ABCTRANS: ₦324K 24 JOHNHOLT: ₦318K 25 CONOIL: ₦317K”
₦100,000 INVESTED IN STOCKS ON 3 JAN 2023 – TOP 25 STOCKS
NOW WORTH (as at 29 Dec 2023):
1 Transcorp Hotel: ₦1.12m
2 CHAMS Plc: ₦895K
3 Computer Warehouse: ₦822K
4 Transcorp Plc: ₦766K
5 MRS: ₦745K
6 NNFM: ₦740K
7 Japaul Gold: ₦607K
8 Ikeja Hotel: ₦571K
— StatiSense (@StatiSense) January 1, 2024
What could be responsible for this unprecedented bullish run?
Economic theory will attribute this bullish run in the stock market to a combination of macro and micro factors. Factors such as financial statements of listed companies, certain strategic decisions made by management, a change of board of directors, sudden institutional buy or sell interest on shares of companies, board room conflict, government regulations that may hinder or advance the activities of certain industries, FX policies, the implementation of certain fiscal and monetary policies by the government, etc.
A January 2, 2024, BusinessDay publication with the headline “Nigerian stocks seen rallying in 2024 at slower pace” revealed that in December 2023, the equities market recorded a significant rise, leading to a record high market capitalization of N40.92 trillion.
Eight companies, including Seplat Energy, Zenith Bank, and others, saw their market value surpass N1 trillion, up from five in 2022, owing to a buying surge from investors. These megacaps make up about 70 percent of the NGX’s total market value, with Airtel Africa at the forefront.
Consequently, investors gained N13 trillion in capital gains during this period.
Speaking to TechCabal in June 2023, Onome Ohwovoriole, an analyst with Money Africa, attributed the buying rally to the unification of the official exchange rates and the suspension of the CBN Governor, Godwin Emefiele.
He said, “The stock market rally this week has been driven, in my opinion, by two factors: the reported unification of the official exchange rates and the suspension of the CBN Governor.” This can be regarded as a macro factor, as government decisions like this affect everybody and all markets, be it the money market or the capital market.
Also, Oise Ajayi, the head of investment research at Achoria Asset Management, speaking to TechCabal during that period, claimed that the market responded positively to the removal of fuel subsidy and the floating of the naira.
He said, “Historically, banking stocks have delivered some of the best returns in the market. The general positive mood in the market is because the government is taking steps in the right direction. The removal of subsidy and today’s news about the Naira float has been long coming, but the previous government refused to initiate them for whatever reason. Now that they have come to the fore, the country seems to be moving in the right direction, and investors are showing their confidence by taking a position in the market.”
“There are several factors, and the leading factor is the reform announced by the president,” Tajudeen Ibrahim, Director of Research and Strategy at Chapel Hill Denham, said in a telephone conversation with BusinessDay, explaining why this bullish run happened.
“The first reform was around the fuel subsidy removal; the second reform was around the exchange rate devaluation. Those two were responsible for the interest or risk on the sentiment of investors.”
He, however, expressed concern for some institutional investors, like the PFA, whom he termed “unweighty.” Ibrahim urged them to build up on their equity investment this year.
Another compiling factor he pointed out was that valuation at the NGX is still “cheap, and investing is a function of valuation.” He asked, “What are the cheap stocks? Where are the cheap stocks?
“The cheap stocks are enormous in Nigeria. At least we have close to 30 fundamentally sound stocks that are cheap in terms of valuation, and so these are some of the key drivers of the performance last year,” Ibrahim pointed out.
He identified one significant factor that would almost certainly drive investor demand for equities traded on the stock market this year.
According to Chapel Hill Denham’s director, “Valuation is still very cheap, which is why Nigeria is still a good investment destination even for foreign investors.”
He, however, admitted that the illiquidity for local investment created by the difficulty in getting FX still serves as a significant stumbling block.
“Once they take out the headwind, which is the illiquidity of foreign currency in our market, If you remove that headwind, Nigeria is still compiling from a valuation standpoint.
“At the moment we are able to solve our FX challenges, we would see a lot in the stock market,” he explained.