…defy election tensions for first time since 2007
…Annual return hits three-year excessive on reforms
…International inflows drop amid lingering FX disaster
The rally seen within the Nigerian inventory market in 2023 for the primary time in an election yr since 2007 is anticipated to proceed into 2024 however at a slower tempo.
The market completed final yr with a return of 45.90 p.c, greater than double that of 2022 and the very best in three years, knowledge compiled by BusinessDay present. The final time Nigerian shares rallied in an election yr was 2007, when the principle index surged 74.77 p.c to shut at 57,990.22 foundation factors (bps).
A number of analysts and trade watchers attributed final yr’s strong efficiency to the reforms carried out by the President Bola Tinubu, company earnings and new listings on the Nigerian Trade Restricted (NGX). The reforms nonetheless didn’t lure again overseas traders as inflows dropped whereas outflows rose as of November amid lingering greenback shortage within the nation.
Buyers reaped N13 trillion in capital beneficial properties because the market capitalisation of equities jumped to a file excessive of N40.92 trillion on the finish of December.
Eight corporations had a market worth of no less than N1 trillion on the finish of final yr, up from 5 in 2022. Seplat Power, Zenith Financial institution and Warranty Belief Holding Firm joined Airtel Africa, Dangote Cement, MTN Nigeria Communications, BUA Cement and BUA Meals within the trillion-naira valuation membership. The mega caps account for about 70 p.c of the entire market worth of corporations on the NGX, with Airtel main the pack.
The NGX All-Share Index crossed the 70,000 mark for the primary time in November and ended the yr at 74,773.77 bps.
“Regardless of historic traits throughout earlier election years that confirmed subdued market performances (2015: -16.1 p.c; 2019: -14.6 p.c), the native bourse has displayed an upward trajectory, defying issues concerning the impression of elections,” analysts at Lagos-based Cordros Securities stated of their markets overview and outlook report.
They stated the market efficiency was majorly influenced by traders’ constructive response to the announcement of important coverage adjustments by the brand new administration, particularly the removing of implicit power subsidies and unification of all official alternate price home windows.
“We count on Nigerian equities to exhibit resilience in 2024, although at a modest tempo,” the analysts stated. “Our projection is that we don’t count on any of our recognized figuring out elements – an enchancment within the FX area, prospects of improved macroeconomic circumstances, and financial coverage course and impression on fastened revenue yields – to have an outsized impression on eventual market efficiency.”
Highlighting the chance of a disconnect between enchancment in firm fundamentals and valuation multiples and intermittent profit-taking by traders, they forecast a 11.6 p.c constructive return for 2024.
They count on bullish sentiment initially of this yr as traders gear up for 2023 full-year monetary outcomes and dividend reinvestment.
Analysts at Afrinvest Analysis identified that the nation’s equities market raced to a 15-year excessive in 2023 fuelled by market-friendly reforms by the present administration and resilient company efficiency.
“We count on the equities market to maintain the constructive momentum by means of 2024, although at a modest tempo. Our mannequin forecasts a 14.8 p.c return for the yr (base case), premised on improved macroeconomic circumstances, anticipated progress in overseas portfolio investments, and a extra steady FX setting,” they stated in a brand new report.
Market to expertise ‘correction’ — Rewane
Bismarck Rewane, managing director of Monetary Derivatives Firm Restricted, stated in a presentation final month that the inventory market will alter to the course of the financial coverage price (MPR) in January 2024.
The MPR, also called the benchmark rate of interest, was raised by the Central Financial institution of Nigeria (CBN) 4 instances final yr to 18.75 p.c from 16.5 p.c on the finish of 2022 in a bid to battle inflation, which quickened to a brand new 18-year excessive of 28.20 p.c in November.
“The Nigerian equities market will expertise a market correction in 2024. An extra hike in rate of interest will dampen investor urge for food for equities. New inventory itemizing will bolster market capitalisation and attractiveness,” he stated.
He stated the proposed itemizing of Dangote refinery would strengthen traders’ sentiment.
“Earnings will stay a operate of alternate price losses or beneficial properties. Moderation in inflation is anticipated to scale back the pressure on company margins in 2024,” Rewane added.
International inflows drop amid lingering FX disaster
International portfolio funding influx into the inventory market fell to N157.32 billion as of November from N187.12 billion a yr earlier, whereas outflow rose to N205.43 billion from N176.90 billion, the most recent knowledge from the NGX present.
Africa’s greatest financial system has been grappling with a greenback scarcity since 2016 when it slipped into its first recession in over twenty years induced by the oil value collapse that began in mid-2014 and the sharp decline in its manufacturing of the commodity.
“We imagine the prospect of overseas portfolio traders (FPIs) returning to the market is a key issue to watch in 2024. As highlighted earlier, overseas traders’ curiosity within the Nigerian equities market has remained weak because of issue in accessing and repatriating funds,” Cordros analysts stated.
They stated whereas steps taken by the CBN to clear FX backlog showcased its dedication to resolve the liquidity constraints, the anticipated return of FPIs will possible be gradual as “re-entry hinges on resolving FX illiquidity challenges”.
“General, we count on a modest enchancment in FX liquidity circumstances, though nonetheless weak in comparison with historic ranges, as we imagine the CBN has regained momentum in implementing FX reforms,” they added.
The reclassification of Nigerian indexes from Frontier Markets to Standalone Markets by MSCI may delay the return of FPIs, even when FX liquidity issues enhance within the brief time period, in line with them.
“A considerable variety of traders who at present maintain naira-denominated belongings did so primarily based on Nigeria’s former classification as a Frontier Market,” the analysts stated.
Afrinvest Analysis stated improved readability and transparency within the FX market is anticipated to encourage better FPI participation.
