•Nigeria’s stock market outperforms global peers in first trading week of 2024 with N2.68tn returns
James Emejo in Abuja, Nume Ekeghe and Kayode Tokede in Lagos
The Central Bank of Nigeria (CBN) yesterday announced that it had disbursed about $61.64 million to foreign airlines through various Deposit Money Banks (DMBs) in the country.
CBN added that it had redeemed outstanding forward liabilities amounting to about $2 billion in the past three months, taking the total to about $2.062 billion.
The FX intervention was confirmed in a statement issued by CBN’s acting Director, Corporate Communications Department, Mrs. Hakama Sidi.
The central bank said the payment reaffirmed its commitment to eliminating the backlog of pending matured foreign exchange in banks as well as dousing pressure on the exchange rate.
Sidi explained that the initiative was part of the apex bank’s efforts to decrease its outstanding liability to the airlines.
She said, “This underscores the CBN’s commitment to the resolution of pending obligations and a functional foreign exchange market.”
According to her, the payments consolidate CBN’s ongoing efforts to settle all remaining valid forward transactions, with the aim of alleviating the current pressure on the country’s exchange rate.
By the latest intervention, the central bank hopes to provide a considerable boost to the naira against other major world currencies as well as increase investors’ confidence in the economy.
The federal government recently received $2.25 billion out of the $3.3 billion foreign exchange (FX) facility from the African Export–Import Bank (Afreximbank).
The long-awaited credit support seeks to ameliorate the acute FX shortage in the country, which had constrained economic activities and doused investors’ confidence.
Earlier in December, President Bola Tinubu had assured Nigerians of his administration’s commitment to resolve the FX backlogs through injection of funds into the market.
It is estimated that there is between $7 billion and $10 billion in existing FX backlogs, which must be cleared, to boost investors’ confidence, some of whom have already exited the country due to the persistent liquidity constraints bedevilling the economy.
Afreximbank, acting as the mandated lead arranger, along with United Bank for Africa (UBA) as local arranger, had closed on a $3.3 billion liquidity support for Nigeria through a structured financing arrangement with the Nigerian National Petroleum Company (NNPC).
THISDAY gathered that the transaction, which released $2.25 billion as the first tranche into the nation’s coffers, was expected to ease the FX illiquidity in the country, while the balance was expected to come in this month. UBA is also acting as the onshore depository bank for the transaction.
Other participants in the deal include Gunvor, Sahara Energy, and other major oil traders that are to join the parties.
The transaction, which is in line with Tinubu’s Renewed Hope Agenda, seeks to stabilise the FX market and ease inflationary trends that have beleaguered the Nigerian economy since the administration took over.
Meanwhile, the Nigerian equities market surpassed global markets in the first trading week of 2024 to continue its 2023 positive rally, as investors continued to take position in under-valued stocks following the federal government’s new reforms.
At the close of trading last Friday, the overall market capitalisation of the Nigerian Exchange Limited (NGX) added N2.68 trillion in just four days , with Monday being a public holiday, to close at N43.593 trillion from N40.917 trillion it opened for trading this year.
Last week’s performance out-classed the first week of 2023 by N1.6 trillion as the stock market only gained N1.08 trillion in market capitalisation in the first five days of 2023.
In the same vein, the NGX All-Share Index increased to historic 79,664.66 basis points, representing a growth of 4,890.89 basis points or 6.54 per cent Year-till-Date (YtD) from 74,773.77 basis points the previous week when the stock market closed for trading in 2023. This is contrary to US major stock indexes, S&P 500, Dow Jones Industrial Average (DJI) and Nasdaq Composite, which commenced 2024 southward.
All three benchmarks recorded their first weekly declines for 10 weeks: S&P 500 (SPX) dropped by 1.54 per cent, while the Nasdaq Composite (IXIC) slumped by 3.26 per cent, and the Dow Jones Industrial Average (DJI) dipped by 0.59 per cent.
According to trading statistics, the S&P 500 recorded its worst weekly performance since late October, while the Nasdaq posted its worst week since late September.
Analysts believe investors have been cautious in the opening sessions of 2024, as they await further clarity on when interest rate cuts will begin, and how quickly they will happen.
In Africa, Nigeria’s All-Share Index outperformed Johannesburg Stock Exchange All-Share that dropped by 3.13 per cent YtD, while Ghana Stock Exchange (GSE)-Composite declined by 0.04 per cent YtD. Egypt’s EGX 30 gained 1.83 per cent while TuninDex dipped by 2.25 per cent YtD.
In addition, Zimbabwe Stock Exchange All-Share Index ended the week positive, gaining 20.29 per cent YtD.
Meanwhile, the Nigerian equities market continued to thrive amid double-digit inflation rate, insecurity, among other challenges in Nigeria.
Before the 2023 general election, Fitch Solutions, in a report, had predicted victory for the candidate of the All Progressives Congress (APC), Bola Tinubu, leading to positive sentiment by investors on the stock market.
On his inauguration day, Tinubu had announced fuel subsidy removal and foreign exchange unification, as both policies trigged investors’ confidence in some fundamental stocks.
Commenting on stock market performance in 2023, Chief Executive Officer, Wyoming Capital and Partners, Mr. Tajudeen Olayinka, said that the market had been quite eventful and bullish.
Olayinka said, “We saw a market that picked its 2023 position way back in November 2022, when it was obvious that the three leading presidential candidates, namely: Bola Tinubu, Peter Obi and Atiku Abubakar that could succeed former President Muhammadu Buhari, were pro-market.
“And so, the build-up to 2023 that started in November 2022 was a demonstration of market confidence in a private sector-centric president.
“The inaugural speech of President Tinubu, with respect to fuel subsidy removal and exchange rate unification, eventually activated the market-wide pent-up confidence that had always been there but eluded the market ever since. This market-wide confidence remained throughout the year.”
On 2024 expectations, Olayinka predicted positive momentum for the Nigerian stock market.
He added, “And we can draw that from 2024 budget proposal of Tinubu, where total reliance has been placed on the use of private capital in funding some important developmental projects across the country.
“In a way, we are going to see more public companies get listed on the stock exchange for the purpose of raising new capital, while the existing listed companies will not be left behind in this development.
“So, I see a very bullish and active primary market in 2024, even though, there could be occasional moderation in price movement across the board, as investors take profit and engage in portfolio rebalancing. For the fact that the private sector will take the lead in navigating the economy out of its prolonged state of disequilibrium, we will see a better capital market in 2024.”
Managing Director, ARM Securities Limited, Rotimi Olubi, said 2023 tested the resilience of the Nigerian stock market against global agencies’ downgrades (FTSE and MSCI) and macroeconomic challenges including persistent inflation, high-interest rates, and foreign exchange losses.
Olubi stated, “Despite all these, the Nigerian equities market proved to stand strong, hitting historic highs with the NGX All Share Index reaching an unprecedented 70,000 points and achieving an impressive 45.90 per cent YtD return, culminating at 74,773.77 basis points by year-end.
“The market’s robust bullish trend began post the implementation of key policy reforms following the Tinubu administration’s inauguration on May 29, 2023.
“These reforms, notably FX liberalisation and the removal of petrol subsidies, spurred investor optimism, resulting in substantial gains, particularly in the banking and oil and gas sectors.
“Furthermore, impressive earnings in the face of inflationary pressures and FX losses further boosted investor confidence, contributing to the remarkable market returns.”
Looking ahead in 2024, Olubi explained that the market’s positive trajectory was anticipated to persist as investors position themselves favourably in dividend-paying stocks, anticipating the release of 2023FY earnings.
He expressed concern over potential removal of selected Nigerian securities from the MSCI Frontier Markets Indexes, which could trigger sell-offs and potentially dissuade foreign investors.
Olubi said, “Yet, given the relatively low foreign investor participation rate in 2023 (September 2023 YtD: 9.51per cent vs. September 2022 YtD: 16.30 per cent), the market impact might be limited.
“Boosting confidence among foreign investors could be aided by the recent positive Fitch Ratings assessment, but persistent challenges like structural issues, the FX crisis, and inflationary pressures need addressing to attract increased foreign participation.
“Consequently, a substantial rise in foreign investor engagement in the Nigerian equities market seems unlikely in the near term.
“In 2024, focusing on stocks with robust fundamentals, particularly in the banking and oil and gas sectors, remains advisable. The factors driving gains in these sectors in 2023 are anticipated to continue influencing early 2024 performance.”
According to analysts at Cordros Research, in the near term, positioning for 2023FY earnings releases and accompanying dividends declarations will continue to support buying activities on the local bourse even, as institutional investors continue to search for clues on the direction of yields in the FI market.
“However, we advise investors to seek trading opportunities in only fundamentally justified stocks as the weak macro environment remains a significant headwind for corporate earnings.”
