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Nigeria’s Resilient Stock Market Gained N5.62trn in 2022 Despite Foreign Investors’ Exit

The stock market had to contend with factors such as foreign investors’ exit and aggressive hike in the Monetary Policy Rate.

Despite the economic challenges faced by the country in 2022, the stock market arm of the Nigerian Exchange Group (NGX) remained resilient as it gained N5.62 trillion in the past year.

In terms of value, the overall market capitalisation increased to N27.915 trillion in 2022, representing an increase by 25.2 per cent from the N22.297 trillion it closed in 2021.

The stock market contended with factors such as foreign investors’ exit, aggressive hike in the Monetary Policy Rate (MPR) that changed investors’ perception in the market investment in third quarter of 2022, among others.

Also, the NGX All-Share Index, an index that tracks the general market movement of all listed stocks on the Exchange, including those listed on the growth board, regardless of capitalisation, rose by 19.98 per cent or 8,534.62 basis points to 51,251.06 basis points in 2022, from the 42,716.44 basis points it closed in 2021.

 The stock market in 2022 came under heavy foreign investors’ exit due to scarcity of foreign exchange, giving way for retail/institutional investors to dominate trading in fundamental and dividend-paying stocks on the bourse.

Precisely, foreign investors’ stake in the equity market dropped to N364.02 billion or 16.67 per cent in the 11 months of 2022, while domestic investors dominated the stock market with N1.819.55 trillion or 83.33 per cent portfolio participation in equity trading in 11 months of 2022.
In addition, the hike in MPR by the Central Bank of Nigeria (CBN) created room for investors’ divestment into fixed-income securities as the inflation rate eroded stocks return.

Following improved corporate earnings by fundamental companies, low yield in fixed income market, among other factors, the stock market segment of the NGX added N5.64 trillion in the first half (H1) of 2022.

According to the Vice president, Highcap Securities Limited, Mr, David Adonri , “the stock market appreciated at the beginning of the H1 2022 due to the impressive 2021 full year and Q1 2022 results released by listed companies.

“The rising crude oil price also enhanced the performance of stocks. However, the market slowed down in June due to unfavorable domestic factors which the rising crude oil market could not offset.

“These were the rising inflation rate, hike in the interest rate and excruciating energy crisis. As the political risk associated with the 2023 general election heightens and the possibility of a further hike in interest rate looms, economic fundamentals may not be strong enough to engender further market growth.”

However, a review of the stock market performance showed that investors on the NGX lost N1.69 trillion between June and August 2022, as investors switched to fixed income market.

The stock market between June and August 2022 was also affected by a hike in the inflation rate (20.52 per cent in August 2022), and the CBN’s increase in its MPR to 14 per cent, which eventually closed the year 2022 at 16.5per cent.

Consequently, investors lost N1.48 trillion in third quarter (Q3) of 2022, but the market regained its position in fourth quarter of 2022 with a gain of N1.034trillion as investors renewed interest in Airtel Africa Plc, MTN Nigeria Communications Plc, Dangote Cement Plc, among other fundamental stocks on the bourse.

 About 69 per cent to N1,100 appreciations in the stock price of Seplat Petroleum contributed to 34.05 per cent gain in NGX Oil/Gas Index, while 1.6per cent to N261 stock price gain recorded by Dangote Cement lifted the NGX Industrial Goods Index by 19.67 per cent to 2,403.24 basis points.

The NSE 30 Index which is made up of the most capitalised stocks ended the year with a single-digit return of 6.98per cent as the banking and insurance index reported 2.81per cent and -11.99 per cent respectively.

Despite the paltry returns of the Banking Sector Index, Wema Bank, specifically led the chart as the best-performing stock in 2022, posting a return of 442 per cent to N3.9 per share, from N0.72 per share.

Overall, Airtel Africa with a gain of 71.2 per cent to N1,635.00 per share from the N955 per share it opened for trading maintained its number one spot as the market capitalised stock on the NGX.

The two major listings on the Exchange in 2022, Geregu Power Plc and BUA Foods appreciated by 49 per cent and 62.5 per cent per shares to N149 and N65 per share respectively.

Commenting on the market performance in 2022, the CEO Wyoming Capital and Partners, Mr. Tajudeen Olayinka noted that the 51,251.06 index points closure of the stock market was an indication of modest recovery, having surpassed the closing figure in the course of the year.
He noted that the growth happened in spite of multiple succession of MPR hikes, high inflationary pressure and scarcity of foreign exchange.
According to him, “I think what we can ascribe to this is the usual market fatigue that normally accompanies prolonged repricing of securities across markets and instruments.

 “Even the real yields in the fixed income space have all closed negative in 2022.  So, any time market prices itself out of context or out of acceptable range, especially when prices have become too low to resist, price recovery sets in, and that is what we have been witnessing since the last MPC meeting in November that produced interest rate hike of 16.5per cent.

“Another important factor is the usual bargain hunting that normally precedes financial year-end rally since many of the listed companies have their financial year-end as 31st December. So, bargain hunters are taking positions ahead of investors that will normally like to benefit from year-end dividend payments. Clearly, it takes two to tango.”

He noted that the stock market’s gain in 2022 did not mean it might remain positive in 2023, citing a change in government.
According to him, “This does not, however, mean that market cannot suffer a setback in 2023, given numerous headwinds that are expected to naturally accompany a transition from a government that has consistently pursued public sector domineering focus in approximately last 8 years, to a new government that is likely to shift its focus to private sector dominance.”

Kayode Tokede