Q3’2023: Nigeria Stock Market closes on a positive trajectory with 29.52% gain

The Nigerian Stock Exchange (NGX) All-Share Index appreciated by 29.52% to close at 66,382.14 index points in the third quarter of 2023.

This development has pushed the market to its 15-year high on the back of strong positive sentiments.

Analysts attributed the rally to the policies of the new administration of President Bola Tinubu, the harmonization of different exchange rates, and the floating of the naira.

Stocks rally on positive sentiments

Despite concerns such as rising inflation, interest rate hikes, and apprehension surrounding the fallout of the 2023 general elections, investor confidence remained strong, leading to increased buying activity.

The positive sentiment among investors can be attributed to several factors, including the peaceful transition to power following the 2023 elections, favourable policies introduced by President Bola Tinubu’s new administration such as the removal of fuel subsidies, streamlining of exchange rates, and the floating of the naira.

Investors responded to the changes in Nigeria’s foreign exchange operational framework and also viewed President Bola Tinubu’s decision to suspend Central Bank Governor Godwin Emefiele, who had implemented restrictive policies affecting their profits, in a favourable light.

Market performance
 
Available statistics to the Nairametrics showed that the All-Share Index, which is the broad index that measures the performance of Nigerian stocks, opened the trading quarter at 51,251.06 index points at the beginning of trading in January 2023 and closed at 66,382.14 points at the end of the third quarter on September 30, gaining 15.131.08 basis points or 29.52%.

Further analysis revealed that activities on the Nigerian Exchange Limited (NGX) which opened the trading year at N27.915 trillion in market capitalization at the beginning of trading, closed the quarter at N36,331 trillion, hence has earned a year-to-date gain of about N8.416 trillion.

Market analysts believed the renewed sentiment in the local bourse market had also grown following a craving to increase capital gains on the back of low prices of stocks owing to an upset in the financial market arising from unstable policies and build-up to the 2023 general elections.

The NGX had during the period under review emerged as one of the best-performing exchanges in Africa during a 3-month duration.

According to African Markets, a website tracking the performance of exchanges in Africa, the Ghana Stock Exchange (+22.84%) emerged first while NGX (+19.33%) emerged second on the list, followed by the Malawi Stock Exchange (+15.79%).

Fundamental shift
 
The Managing Director, of Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe in a chat with Nairametrics said that a Demographic shift has happened in the NGX in the last few years.

“We now have more local institutions and retail investors in the market than foreign portfolio investors. The reverse used to be the case, this shift has naturally reduced volatility in stock prices as the locals are likely to have more faith in the local market than foreigners. That’s why you see the NGX ASI continuing to rise despite all the uncertainties in the environment.”

Amolegbe further said that the expectation that the policies will encourage the inflow of foreign investment is the primary trigger that is causing the stock market rally.

“The second trigger will include the fact that some of these policies will lead to a short-term increase in inflation level and typically stock prices tend to rise along with inflation,” he said.

He explained that the other driver might also be the fact that we are moving toward the end of the first half of the year, and this normally leads to portfolio rebalancing by fund and asset managers,

“They rebalance their portfolio every quarter and every half year and this normally results in the stock rally,” he said.

Emergence of Tinubu

The Managing Director, of Crane Securities Limited, Mr Mike Eze said the result of the election which brought President Bola Tinubu stabilized the market.

“At the beginning of the year, there was so much tension and anxiety because of the election. When the election was over, investors saw that the tension did not lead to what was expected, it brought stability to the market. 

Once the market is stable, it leads to a rally which means there is adequate demand for stocks in the capital market. So, one of the major reasons that led to stocks’ rally during the period under review was the election that led to the emergence of Bola Tinubu as president of Nigeria,” he said.

He noted that policies that are market friendly introduced by the new president such as harmonization of the different exchange rates, the shake-up in the apex bank which trickle down to the money deposit bank, and the floating of the naira were major drivers for the rally.

Eze added that the removal of fuel subsidies further made the country attractive to foreign investors and high-net-worth local investors.

He noted that many investors are rebalancing their portfolios in readiness for half-year results that will hit the market any moment from now.

“Most quoted companies, particularly from the banking sector, have done relatively well and so the expectation is that there will be a sumptuous return on investment. 

They are repositioning and re-investing in other sections of the market and by so doing it led to diverse action which led to the rally that we are witnessing this half year,” he said.

Looking forward 

On market outlook in Q4, the chief research officer of InvestData Consulting Limited, Ambrose Omordion urged the new government to pursue transformation reforms and policies vigorously to sustain performance.

“We expect mixed sentiment on bargain hunting and portfolio repositioning ahead of Q4 in the face of sector rotation. All eyes are on the monetary policy drive of the New Central Bank of Nigeria (CBN) Governor and his team.

“However, pullbacks are creating ‘buy’ opportunities amidst the economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer better investment direction to investors.

“We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.”

Cowry Assets in its Weekly Financial Markets Review & Outlook anticipated the bearish sentiment to continue in the coming week as the market seeks catalysts and policy pronouncements to trigger the bullish sentiment.

“However, as we drive into the final quarter of the year and the reporting season draws closer, investors will begin to rebalance their portfolio in their search for alpha in preparation for the quarter-ending reporting season.

Meanwhile, we continue to advise investors on taking positions in stocks with sound fundamentals,” analysts said.