Despite the country’s dire circumstances, the stock market appears to have recently shown signs of life, with a year-to-date gain of 23.7 percent.
Despite the fact that this growth appears to defy practical explanation, many reasons have been offered for the market’s current positive outlook.
Apart from the fact that the market is riding high on the back of relatively strong corporate results at the end of 2021 and the first quarter of 2022, analysts are inclined to believe that the economy’s inflationary spiral is the dramatic magic of the recent bullish market.
When it comes to analysing the market, there has developed a stoic demeanour. However, the current bullish market experience comes at a time when the Nigerian economy is in dire straits, despite a 3.1 percent growth rate in Q1 2022.
Food production is expected to decline due to fertiliser shortages due to the Russia/Ukraine war; Nigeria has also not fully recovered from the devastating impact of Covid-19; the growing insecurity that has hampered agricultural activities is taking a different toll on Nigeria’s food security; food inflation, according to NBS, stood at about 17.2 percent; an N6 trillion deficit is tugging at the country’s purse strings. This is despite the fact that headline inflation is still around 16.8%.
Worse, the country’s total direct remittances fell by $119.4 million (48 percent) to $130.12 million in January 2022 from $249.52 million in December 2021; FG aims to service a total debt stock of about N46.63 trillion with about 95 percent of its revenue. The most serious issue is the country’s political instability.
This frightening scenario is not conducive to equities market growth, as market participants are prone to being sluggish with their investments. However, in recent years, this has not been the case. Also posing a significant challenge is the country’s new borrowing limit, which has been raised from 25% to 40% of GDP. This was stated in the Medium Term Debt Strategy and continues to perplex many analysts, given that the country’s main source of revenue, crude oil prices, which have risen to $100 per barrel and above, are still fluctuating.
The World Bank, for one, has expressed concern that many countries will face recession as a result of recent head and tail winds caused by hyperinflation and the Russia/Ukraine conflict, which have harmed supply chains that have yet to recover from the devastating effects of Covid-19.
Almost everyone nowadays is aware that Nigeria and India are vying for the title of world poverty capital. The naira, which was valued at N220 per dollar on June 15, 2015, has depreciated by nearly 100% to N606 per dollar in June 2022.
Regardless of these factors, NGX has consistently been one of the best-performing global markets in recent years. For example, the stock market continued to be bullish, gaining 0.34 percent as the All Share Index and market capitalization rose from 52,917.76 points on May 12, 2022 to 53,098.46 points on May 13, 2022. Similarly, the market capitalization increased by 0.34 percent to N28,625 trillion.
Since the beginning of the year, the stock market has been relatively strong, with the All Share Index and market capitalization reaching new highs. The NGX All-Share Index rose 23.7 percent from 43,026.23 points on January 4, 2022 to 53,201.38 points on May 31, 2022, according to Business Hallmark research.
While the Nigerian stock market rallied in May 2022, owing to positive investor sentiment in the equities market, with the All-Share index gaining 6.75 percent to close the month at 52,990.23 basis points, up from 49,638.94 points the previous month, analysts believe the Central Bank of Nigeria’s recent raising of Monetary Policy Rates (MPC) rates to 13% may slow down the equities bullish trend.
“The sharp rise in inflation across both advanced and emerging market economies has raised growing concerns among central banks,” CBN Governor Emefiele said at the MPC’s 285th meeting. “The progressive rise in inflation, driven by rising aggregate demands and wage growth, has put sustainable pressure on price levels,” he added.
“As a result, major central banks such as the Federal Reserve of the United States, the Bank of England, the European Central Bank, and the Bank of Canada have issued strong guidance of a gradual shift away from monetary policy accommodation to drive market interest rates, which may eventually impact capital flows away from emerging market economies.”
At a recent virtual session, Parthian Securities’ Head of Investment Research, Oluwaseun Dosunmu, predicted that the stock market would look up in the short to medium term this year.
“Every pre-election year, investors become wary and cautious about investing in the market,” Dosunmu said. This year, however, things have been moving in the opposite direction, and the market has performed admirably.
According to critical analysis, the market capitalisation fell -0.91% from N25.543 trillion in January 2022 to N25.311 trillion in February 2022. From February to May 2022, it increased by 12%, and from May to June 10, 2022, it increased by 0.39 percent.
BH recalls that during the same time period in 2008, the market remained bullish and investors smirked at the banks. The major indicators reached previously unheard-of heights.
On March 5, 2008, the market capitalization peaked at around $13.1 trillion, and the All Share Index reached a dizzying high of 66,551.84 basis points. The Nigerian Capital Market was thrown into a frenzy as most equities became bullish.
Traders, civil servants, farmers, and even students invested in the market, making it the toast of the Nigerian business community.
The Nigerian Stock Exchange (NSE) became a hive of activity, with both investors and speculators scrambling to make a profit, according to many analysts. Some stocks increased by more than 100%, while others increased by 50% or more.
Mr. Chidi Ajaegbu, former President of ICAN and founder / Chief Executive Officer of Heritage Capital Markets, spoke to Business Hallmark and cautioned investors.
“Should I therefore advise investors to remain cautious in their investments?” It must be a prudent investment. If you ask me, you should diversify your investments; some of them should be in hard currency, and you should balance and manage your investments so that a shock in one sector does not deplete your net worth.”
