Stocks defy rate hike to gain N15.25trn in 5 months

Nigerian stocks gained N15.25 trillion in the first five months of 2024, holding their own against fixed income assets which have been buoyed by the rapid hike in benchmark interest rates.

Geregu Power, Dangote Cement, BUA drive rally

Driving the stock rally were companies including Geregu Power, which jumped 150.6 percent, Dangote Cement (105.3 percent), BUA Cement (72.07 percent), BUA Foods (96.4 percent) and Julius Berger (90.07 percent).

The other best performing stocks for the five-month period include Morison (+58.9 percent), Presco (+52.3 percent), Seplat Energy (+45.7 percent), Meyer (+47.6 percent), Tripple Gee (+92.1 percent), and Transcorp Power (+55.8 percent).

Nigeria’s stock market, up 32.8 percent, has been on a remarkable run in 2024, outperforming African peers from the Johannesburg Exchange to the Nairobi bourse.

The overall market capitalisation closed May 2024 at N56.172 trillion, gaining N15.25 trillion or 37.28 percent from N40.917 trillion at the beginning of the year.

Consequently, the NGX ASI increased to 99,300.38 basis points, about 24,526.61 or 32.8 per cent Year-to-Date (YtD) performance from 74,773.77 basis points it closed for trading 2023.

The stock rally is despite the aggressive interest rate hike in Nigeria which had feared would lead to capital reversals from stocks to fixed income.

April, May performance show market losing steam

However, the market is beginning to lose steam. This may be a sign that the rate hike is starting to have an impact. Most of the gains of the first five months were between January and March. The market was down 6.1 percent in April and only rose by 1.1 percent in May, according to NGX data.

David Adnori, Vice President, Highcap Securities Limited said that investors traded based on sentiment, adding that the emergence of Bola Tinubu as Nigeria’s President further energised the stock market, since market participants had confidence in his ability to rejig the economy and implement economy-friendly policies. That confidence is fast fading hence the market slowdown in April and May.

“Also, the management of the Exchange has enforced compliance, transparency and a market friendly environment that continues to impact heavy participation in stock trading by both local and foreign investors,” Adnori said.

Driving the rally in the five-month period were retail and institutional investors.

In their June 3 note, Lagos-based Coronation Research analysts noted that Nigerian pension funds’ holdings in the equity market rose by 16 percent between the beginning of this year and the end of April.

Retail investors are also increasingly piling into stocks.

Tajudeen Olayinka, an investment banker and stockbroker, said that the drive by many investors to hedge against inflationary pressure is behind the renewed interest in equities.

“This is demonstrated by simultaneous rise in interest rates and equity prices. Beyond this analogy, the economy is still grossly awash with Godwin Emefiele’s N30 trillion illegally printed for the use of former President Muhammadu Buhari’s administration,” Olayinka said.

“So, there is excess liquidity in the system, chasing fewer profitable investment opportunities in the economy,” he said.

For instance, the NGX Industrial Index has gained 73.08 per cent YtD to 4,694.42 basis points as of May 2024, while NGX Consumer Goods Index appreciated by 39.5 per cent to close at 1,564.19 basis points.

The taking position in Dangote Cement Plc influenced the 73.08 per cent YtD growth in NGX Industrial Index.

The stock price of Dangote Cement has appreciated to N656.70 per share as of May 2024, about 105.28 per cent growth from N319.9per share the stock opened for trading this year.

Among the top index performance was the Oil/Gas Index which gained 24.07 per cent YtD to 1,294.16 basis points and the Insurance Index which gained 14.17 per cent to close May 2024 at 367.23 basis points.

Amid reforms in the banking sector, the NGX Banking Index dropped by 11.13 per cent to close May 2024 at 797.37 basis points as investors trade listed banking stocks with caution.

Capital market analysts stated that the stock market performance in the first five months of 2024 is against the backdrop of mixed corporate first quarter ended March 2024 earnings by listed companies, the federal government’s reforms in the foreign exchange market, and fuel subsidy removal.

Amid the hike in MPR to 26.25 percent, capital market experts stated that its impact had created sentiment trading among investors who saw the fixed-income market as an alternative investment opportunity to hedge against double-digit inflation.

At the Monetary Policy Committee (MPC) meeting, Governor of Central Bank of Nigeria (CBN), Olayemi Cardoso, stated that the key focus of the Committee remained to achieve price stability by effectively using tools available to the monetary authority to rein in inflation.

Nigeria’s headline inflation rate continued to climb to 33.69 percent in April 2024, its highest since March 1996 and up from 33.2 percent in the prior month.

This marks the 16th consecutive month of acceleration in inflation, partly because of renewed weakness in the naira and higher petrol prices.