Nigeria’s equity market: Weathering the storm in volatile times

In the past 12 months, the Nigerian equity market recorded positive performance despite volatility in the global market and low economic activities resulting from insecurity problems, forex scarcity among others. AMAKA IFEAKANDU in this report x-rays factors that contributed to the growth trend of the market in 2022.

Despite volatility in the global market, Nigeria stock market recorded good performance in 2022. The nation’s equity market which opened the year at N22.297 trillion appreciated by N4.776  trillion or 21.42 per cent to close at N27.073 trillion on December 23, 2022.   The NGX All Share Index also increased by 6991.65 basis points to 49.706.09 points on December 23, 2022 from 42714.44 points reported at the end of December 2021.   

Quarterly market performance

The market started on a positive trend in the first and second quarter of 2022 but nosedived in the third quarter before returning to a bullish run in the fourth quarter starting from the month of  November.        

An analysis of the transactions for the year showed that in the first quarter, the domestic equity market took positive direction, appreciating by N3.014 billion or 13.52 per cent to close at N25.311 trillion, while the index up  4251.04 basis points or 9.95 per cent to  close at N46965.48.             

Also in the second quarter of the year, the market sustained growth trend as the two market indicators, index and market capitalization increased by 10.33 per cent and 10.37 per cent respectively to close at 51817.59 points and N27.935 trillion. 

Available data from NSE showed that in the third quarter, the market nosedived, shedding N1.484 trillion or 5.31 per cent to N26.451 trillion from N27.935 trillion it closed on June 30, 2022.

The ASI in the same vein went down by 2793.43 basis points to close at 49024.16 point on September 30, 2022.  But the local equity market rebounded in the fourth quarter, indicating that between October and December 23, 2022, the equity market grew by N623 billion or  2.35 per cent to close at N27.073  trillion while ASI surged by 681.93 basis points or 1.38 per cent to 49706.09 points as at December 23, 2022 from 49024.16 points it closed  in September this year.    

Challenges                     

However, within the year under review, investors in the Nigerian stock market witnessed double-digit inflation rate of 21.47 as at November,  scarcity of foreign exchange, uncertainty in global economies, fuel scarcity and a hike in the Monetary Policy Rate (MPR). The Central Bank of Nigeria raised MPR from 13 per cent in May to 14 per cent in July, before rising to 15.5 per cent in September and 16.5 per cent in November, 2022. Investors reaction to CBN hike in MPR , led  to the aggressive movement of funds  to the fixed income market that comes with low-risk investment and modest yield. All these impacted on the market activities within the year.

Operators’ views/projection

Capital market operators said that notwithstanding the challenges experienced within the year, the nation’s equity market performs wonderfully well in 2022. The growth recorded in the market this year according to them is likely to surpass  other years.  Commenting on the market performance, Chief Operating officer, Investdata Consult Limited, Ambrose Omordion said the nation’s stock market started the year on a bullish note, as market players reacted to unaudited impressive full year numbers of 2021 in the midst of relatively low interest rates and yield in the fixed income market that supported inflow of funds into the equity space at the first month of the year in expectation of corporate actions. 

He said being the historical peak of earnings reporting season of 2022 and some profit taking activities, the market side-trended for a period of two months before picking up again on dividend announcement and higher payout by majority of companies that grew their dividend. 

He pointed out that as investors reaction to impressive 2021 financials and payout, coupled with first quarter outstanding numbers and price appreciation of highly capitalized stocks that supported the rally in second quarter of the year,  the market hit fifteen years high of 54,290.80 points, NGX index reversed completely on wave four correction to 43,439.72 on monetary policy tightening of CBN after hiking rate by 150 points to 13 per cent  from 11.5 per cent first time in late May after years of unchanged MPR.  

He stated that the increasing participation of institution investors especially PFAs and others had supported the market in the first half of the year as reflected in the volume traded and liquidity level, despite the seeming low participation of foreign investors after post Covid-19 and prolonged exchange market pressures.

The dynamics in the recent recovery shows oscillating volume patterns that are relatively low that indicates low participation of PFAs and others that are holding cash. 

Omordion stated that the outlook for 2023 remain mixed, as the recovery is expected to continue on value and low price to earnings ratio in the midst of higher dividend yields and corporate actions, despite uncertainties surrounding 2023 general election which if successful will lead to financial market and economic reset that comes with reforms as the three presidential candidates are pro market and businessmen.                                               

A Financial analyst, Mr Chigbo Oduozo in his own view  said that the market started in a positive note in the begining of the year but took negative trend in the third quarter  due to the continued rise in fixed income rates and the persistent hike in MPR. He said that some investors migrated from stock market to fixed-income market in a move to take advantage of high yields, which was triggered by the hike in the policy rate.  He explained that exit of foreign investors from Nigerian stock market due to the upcoming general elections, weak local currency and insecurity in the country also impacted on the market.

He pointed out that other macro-economic indicators such as inflation rate, and scarcity of foreign exchange have helped to reduce demand for stocks as investors moved to fixed income markets.                 

Also speaking, Managing Director, APT Securities and Fund Limited, Malam Garba Kurfi said the market growth during the year shows resilience of the nation’s capital market.

He said with the listing of BUA foods and Geregu Power Company Plc, market cpitalisation has already surpassed growth recorded in the previous years, adding that the market will sustain its upsurge till the end of the year. He said exit of foreign investors during Covid-19 contributed to the good performance of the market, because  most of them normally dump local equities during election periods for fear of uncertainty.                                         

Making projections into the new year, he said the capital market in 2023  looks brighter than 2022, stressing that major Blue chips stocks  trading below the fair value are likely to recover next year after the election and this will impact positively on the growth of the market.