•Gains rose 31.8%, index up 45% •Analysts link renewed confidence to reforms •Expect further rise in 2024 •But PwC says it is cautious optimism

By Peter Egwuatu

Amid rising insecurity, inflation, interest rate hike, foreign exchange crises and other macroeconomic challenges, as well as the uncertainty in the global economy, investors in the Nigerian stock market raked in N13.0 trillion gains in the year 2023.

Since the beginning of the year, the stock market has witnessed an unprecedented rally and buying interest across sectors, especially in the financial services, consumer and industrial goods sub-sectors, which triggered massive bargain hunting in shares of large capitalized companies, while driving up key performance indices and stimulating activities in the market.

The market has been driven by the foreign exchange policy reform and an influx of impressive earnings mainly reported by the banking sector.

Specifically, the Nigerian Exchange Limited, NGX, market capitalisation, which represents the total value of companies listed on the Exchange, closed the year last weekend at N40.92 trillion, a 31.8 percent rise from N27.92 trillion at the end of December 2022.

This is the highest gain ever recorded in the history of the market.

Similarly, another major performance indicator, the Nigerian Exchange (NGX) Limited All-Share Index (ASI), rose by 45.9% to close at 74,773.77 points on Friday December 29, 2023 from 51,251.06 points in 2022. This is also the highest point on record.

Latest reports released by the NGX on domestic and foreign portfolio participation in equities trading for November 2023 showed that foreign portfolio investors have started to increase their stake in the market.
The foreign transactions Year-to-Date, YtD, stood at N362.75 billion as against N364.02 billion in 2022.
The transaction data for 2023 shows that total domestic transactions are circa N2.871trillion, whilst total foreign transactions are circa N362.75billion.

Recall that market capitalisation rose by N5 trillion in the first half (H1) of the year, causing the NGX to hit a 16-year high for the first time since 2008, to close at 60, 108.86 on Tuesday, June 27, 2023. It opened the year at 51,251.06 on January 3, implying an increase of 8,857.8 points or 15 per cent.

Similarly, market capitalisation which opened the year at N27,915 trillion, closed at N32,729 trillion in the first half, representing N5 trillion or 15 per cent appreciation.

Meanwhile, analysts argued that the seemingly bold economic reforms and a strong national economic team of the new government have spurred renewed investors’ confidence in the market.
The unprecedented rally recorded in the market since the beginning of the year also enabled companies to exhibit significant growth in various financial metrics such as profit before tax, total assets and net profit margin, with mouth watery interim dividends, especially for the tier one banks.

For instance, Zenith Bank and Guaranty Trust Holding Company (GTCO) declared an interim dividend of 50 kobo each, amounting to N15.698 billion and N14.72 billion, respectively, up from N9.42 billion and N8.83 billion interim dividends paid within the same period in 2022.

United Bank for Africa (UBA) also paid an interim dividend of 50 kobo, higher than 20 kobo declared in the corresponding period in 2022.

Stanbic IBTC Bank paid N1.50 interim dividend; Fidelity Bank, N0.25; Custodian Insurance, N0.15; Seplat Energy, 3 US Cents; and MTNN, N5.60 among other strong interim dividend stocks.
Also, a year-to-date review of listed firm price movement performance showed that stocks across sectors have witnessed robust capital appreciation, returning double gains to investors.

For instance, MTN Nigeria has returned 29.30 per cent gain in 9 months ended September 2023, 9M’23 while Dangote Cement rose by 24.9% BUA Foods increased by 100% while Conoil witnessed a 119 % increase in capital appreciation.

Transnational Corporation of Nigeria garnered a 173% gain while Cadbury and PZ Cussons Nigeria also returned with 50% and 49 % gain.

The analysts believed that the strategic policies and decisions of President Bola Tinubu’s government would continue to impact listed firms’ financial performance across all sectors.

Meanwhile, the primary market for stock market was nearly inactive in 2023 except for a few Rights Issue. Public Bond issuance dominated the primary market for debt. A few corporate bonds were also issued in 2023.

Market outlook 2024
Mike Ezeh , the Chief Executive Officer of Crane Securities Limited, said, the emergence of President Bola Tinubu further energised the market since market participants have hope in his ability to rejig the economy and implement economy friendly policies.

“The elections came and was hitch free against all unification of the multiple exchange rates, review of monetary and fiscal policies, shake up of major changes carried out at the apex bank and its overflow down to the deposit money banks across the country brought stability to the market.

“The commissioning of the first indigenous private refinery which has cyclical effect on both upstream and downstream operations of petroleum companies quoted in the market propelled the interplay in the market by some high-net-worth investors on many quoted companies resulting in high turnover in trading volumes of those companies leading to the significant increase in market capitalisation within the period.”

He urged the new government in 2024 to continue to implement policies that would provide an enabling environment for businesses to thrive, saying this would help boost the nation’s Foreign Direct Investment (FDI) and attract issuers to the capital market.

Cautious optimism heading into new year- PwC
PwC has stated that amidst the economic disruptions arising from sudden macro-economic reforms in the short run, it is expected that these reforms would yield positive benefits for theeconomy and the capital market in the long run.

“The liberalisation of the foreign exchange market could potentially attract foreign investments and positive capital flows. In addition, the removal of fuel subsidy will provide more fiscal space for the Federal Government and allow for channeling of the funds saved from payment of subsidy into more developmental projects such as infrastructure development. However, policy implementation and accountability in fiscal offices is key to reap the benefits of the subsidy removal.

Other macro-economic initiatives of the Federal Government aimed to improve its fiscal position and increase revenue including setting up the Presidential Committee on Fiscal Policy and Tax Reforms to enhance revenue collection efficiency, ensure transparent reporting, and promote the effective utilisation of tax etc. and the planned sale of about 20 state-run companies to raise funds and improve governance in these entities also presents opportunities for the capital market. The Sale of the state-owned entities through the capital market would deepen and grow the market. Furthermore, tax incentives to attract more companies to utilise the capital markets as well as investors to participate in investing in the capital markets could be introduced through the tax reform process.

The domestic equities market outperformed most of its peers in the West African market.
Investors had a positive reaction to the bold key policy changes by the government such as the removal of subsidy, floating of the naira and the unification of the exchange rate windows which caused the market to rally positively.”

Analysts at Investdata Consulting Limited stated: “The mixed outlook for fixed income market in the face of rising inflation and depreciating naira value has supported funds flowing into the equity space as players hedge against Nigeria’s prevailing hyperinflation. Stocks are also becoming cheaper even at this current market value due to the exchange rate that is revealing their high upside potentials if foreign investors return as a result of the likely rate cut in the matured economies. This is just as the government is expected to put the economy in the path of recovery with fiscal and monetary policies in the midst of ongoing global and domestic financial markets reset. However, we note that 2024 is the beginning with unaudited 2023 accounts and dividend season.

Meanwhile, all eyes are on the fiscal and monetary authorities to give direction of the government reforms and policies so far.”

Reacting, David Adonri , analyst and Executive Vice Chairman at HIGHCAP Securities Limited, said: “Although after effects of flood and farm insecurity depressed the Commodities market in 2023, positive developments were recorded by Lagos Commodities and Futures Exchange, LCFE. During the year, LCFE facilitated several Paddy Rice Contracts and traded heavily on Eko Gold Coin.

The macroeconomic situation remained depressing with galloping inflation which rose from 21.5% in January 2023 to 28.2% in November 2023. GDP growth rate fell short of expectation ending Q3 with 2.54%. Following market reforms, Naira depreciated from N449.05/$1.00 in January 2023 to N802/$1.00 in December at I&E window.

”Macroeconomic situation is expected to improve in 2024 as the economy readjust to New price level. The commencement of domestic refining of crude oil is expected to have salutary effect on forex and petroleum products prices. Monetary policy is expected to focus on price stability. If CBN carries out the policy of recapitalization of banks in 2023, then the primary market for equities may take center stage in 2024. Several manufacturers whose balance sheets were wounded by the market reforms are also likely to access the Capital Market for funds in 2024.

The Commodities ecosystem is likely to be very active in 2024 if current military action against bandits, terrorists and insurgents is pursued with undiminished intensity.”

Commenting, Tajudeen Olayinka, Analyst and CEO, Wyoming Capital and Partners said: “
The stock market has been quite eventful and bullish in 2023, and can reasonably project further improvement in 2024, as more companies approach the market for listing and public offerings. The fact that government will depend largely on the use of private capital in addressing infrastructure deficit, means that we will see a better capital market.”

In his projection for 2024, Victor Chiazor, Analyst and Head of Research at FSL Securities Limited said: “Government policies around Foreign exchange and subsidy removal had a negative impact on the economy.

In 2024, we anticipate some level of normalisation around recent policy statements by the government hence, the equities market is expected to be driven by company performance as well as new pro market policies.”

Despite the economic headwinds of 2023, the equities market had a positive YtD growth of 40% driven by the foreign exchange policy reform and an influx of impressive earnings mainly reported by the banking sector. However, same government policies around Foreign exchange and subsidy removal had a negative impact on the economy. The economy was hit by high inflation and slow GDP growth, even as the monetary policy committee maintained a tight monetary regime in a bid to reign in inflation.

In 2024, we anticipate some level of normalisation around recent policy statements by the government hence, the equities market is expected to be driven by company performance as well as new pro market policies.”