The Nigerian stock market has been on a roll in the past month, posting impressive gains across various sectors and indices. The All-Share Index (ASI), which measures the performance of all listed equities, rose by 6.7% in July, reaching its highest level since February 2020. The market capitalization also increased by 6.8%, adding N1.38 trillion to close at N21.76 trillion.
What are the factors behind this bullish trend? Analysts point to several reasons, such as the improved macroeconomic outlook, the easing of covid-19 restrictions, the positive corporate earnings, and the increased foreign portfolio inflows. Let’s take a closer look at each of these factors and how they have impacted the market.
Improved macroeconomic outlook: The Nigerian economy has shown signs of recovery from the recession caused by the pandemic and the oil price crash. The GDP grew by 0.51% year-on-year in the first quarter of 2023, following two consecutive quarters of contraction. The inflation rate also moderated to 17.75% in June, down from 18.12% in May, as food prices eased slightly. The exchange rate has also stabilized, as the Central Bank of Nigeria (CBN) adopted a more flexible and unified regime, eliminating the multiple exchange rates that had plagued the market for years.
Tekedia Mini-MBA edition 14 (June 3 – Sept 2, 2024) begins registrations; get massive discounts with early registration here.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
Easing of covid-19 restrictions: The Nigerian government has gradually lifted some of the lockdown measures that were imposed to contain the spread of the coronavirus, allowing more economic activities to resume. The vaccination program has also gained momentum, with over 4 million doses administered so far, covering about 2% of the population. The easing of restrictions has boosted consumer confidence and spending, as well as business optimism and investment.
Positive corporate earnings: Many listed companies have reported strong financial results for the first half of 2023, reflecting their resilience and adaptation to the challenging operating environment. Some of the sectors that have recorded impressive growth include banking, telecommunications, consumer goods, and oil and gas. For instance, Zenith Bank, one of the largest banks in Nigeria, posted a 5% increase in gross earnings and a 9% increase in profit after tax in the first half of 2023. MTN Nigeria, the leading telecommunications operator, reported a 24% increase in revenue and a 49% increase in profit after tax in the same period.
Increased foreign portfolio inflows: The Nigerian stock market has also attracted more foreign investors in recent months, as they seek higher returns and diversification opportunities in emerging markets. According to the Nigerian Stock Exchange (NSE), foreign portfolio transactions increased by 61% from N40 billion in June to N64 billion in July, accounting for 22% of total transactions. The increased foreign inflows have also supported the liquidity and stability of the market.
What are the prospects for the Nigerian stock market going forward? While there are still some risks and uncertainties, such as the third wave of covid-19 infections, security challenges, and policy inconsistencies, analysts are generally optimistic about the outlook for the market. They expect that the positive momentum will be sustained by the improving economic fundamentals, the robust corporate earnings, and the favorable investor sentiment. They also advise investors to be selective and focus on quality stocks with strong fundamentals and growth potential.