Nigerian stocks held back by rising inflation

Nigerian stocks have barely delivered double-digits real returns so far this year as record inflation consumer price levels erode price appreciation of the best-performing stocks in the market already beaten down by the coronavirus pandemic.

As of Tuesday, 30 stocks have delivered a year- to date in the positive region, an average of which stood at 23% (41% on an annualized basis). In real terms, the advancers have risen less than 1% (and 2% annualized) due to the country’s high inflation rate.

Although investors rarely bet on one stock, the analysis which doesn’t factor in dividend payments, underscore the challenge of creating wealth amid the country’s unfavourable macro-conditions.

On a year- to- date basis N348 billion have been shaved off the market capitalization on the back of weaker sentiments of investors due to COVID- 19 pandemic and weaker oil prices – both global events with severe consequences for Nigeria.

Recent naira devaluations and rising inflation rates have also added to the headaches of investors who must earn higher returns to have greater value for the risk they take.

Stocks like Neimeth and Law Union have on nominal terms risen over 100% since the start of the year. Adjusting for annual inflation of 12.56% in June, capital gains are roughly 8% and 7% for each.

Businessday’s analysis included May & Baker (44.04% YTD vs 79% annualized), Ekocorp (41.18% YTD vs 74% annualized), Okomu Oil (26.8% YTD vs 48% annualized), Consolidated Hallmark (25.64% YTD vs 46% annualized), and AIICO (25% YTD vs 45% annualized ) which make up the seven best-performing stocks as at Tuesday, from a capital gains perspective.

Their respective annualized returns are all less than 5% after discounting for inflation.

Nigeria’s inflation rose for the 10th straight month to 12.56% in June, its highest in more than two years, as prices of medical-related services and products, and transport rose the most on the non-food index.

Food inflation in the month rose by 15.08 percent in the period compared to the 15.04 recorded in the previous month while core inflation, which captures all items other than food, rose slightly by 10.13 percent from 10.12 in May, the NBS said.

Faced with a low-interestrate environment, investors are having difficulties growing their investments. Still, an aversion for equities has kept most of the huge liquidity in the fixed income market.

Despite challenges, analysts say in the second half of the year the healthcare sector and technology stocks will likely prove resilient as investors look to beat the market