Equities market struggle but defies recent turmoil

Okey Onyenweaku

Equities market appear to have defied the high volatility in the system to gain 5.29 per cent this year after appreciating by 19.98 per cent in the year ended 2022. This reflected in the swelling of the NGX All share Index from 51,595.66 points in January 3, 2023 to 54,327.30 in February 10, 2023. Similarly, market capitalization appreciated from N28.102 trillion in January 3, 2023 to N29.590 trillion in February 10, 2023.

Surprisingly, these growth is recorded in the midst of the conundrum of the CBN’s redesigning of the Naira and fuel scarcity which have heightened anxieties a few weeks to 2023 elections.

There is a consensus by financial experts that the capital market of any country should be a barometer with which to measure her economy. Going by this theory, industry analysts observed that it was normal for the equities market to move in the same direction with the economy.
Many market spectators were surprised to see the direction of the market turn from a weak position to a fairly strong position and even for the better in the end of 2022.

The impression of many is that a Gross Domestic Product (GDP) growth of 3% is not only low but also paltry for a country with huge potentials as Nigeria. Experts had hinted that redeeming Nigeria from the economic doldrums would require a GDP growth of about 10-15 per cent sustainably for 10 years to stabilize the country.

However, investors are ever looking for where to reap the best yield and fortunately the Nigerian equities market has returned over 5 per cent this year after bulging investors bank accounts at the end of business year 2022.
“It is going to be dicey for the equities market if the elections do not give hope’’, a senior banker who pleaded anonymity said.

Macro-Economic Challenges
Nigerian economy is in dare strait. About 40%(80-100m) of Nigerians are wallowing in extreme poverty ;food production is expected to decline given to fertilizer shortages due to Russia/Ukranian war; Nigeria has also not fully recovered from the devastating impact of Covid-19; the growing insecurity which has hampered agricultural activities is taking a different toll on Nigeria’s food security; food inflation according to NBS stood at about 23.75%; over N12trillion deficit is tugging at the N21trillion budget for 2023 and the bulk of debt servicing will also come from that money; the value of the naira keeps declining and the Country remains unproductive; unemployment and underemployment rates stood at 33% and 23% respectively.

While head line inflation receded to about 21% from 22%, total remittances grew 8.85 per cent to from $19.2billion last year. This amount is still low compared to $23billion recorded in 2019. FG targets total debt stock of about N77trn if the N21trillion ways and means the CBN lent FG is securitized.

Even with the recent Nigeria’s recent revenue which hit about N10trillion in 2022, the country still services its huge debt with about 95% of its revenue. And most problematic is political instability in the Country.

Ratings agency S&P on February 3rd 2023 affirmed Nigeria’s credit rating at “B-/B” but turned negative on its outlook, citing increasing risks to the country’s debt servicing capacity over the next one-to-two years.

Similarly , Moody’s Investors Service downgraded Nigeria’s rating further as the global credit ratings agency believes the government’s fiscal and debt position to worsen given numerous challenges facing the government.

“Ultimately, the risk that a negative feedback loop sets in over the next couple of years between higher government borrowing needs and rising interest rates has intensified, exacerbating the policy trade-off between servicing debt and financing other key spending items. The 2023 budget plans on an even larger fiscal deficit than in 2022, while the government’s funding options remain narrow and reliant on central bank financing. In addition, the government’s lack of access to external funding sources will add to the external pressure from depressed oil production and capital outflows, thereby eroding further Nigeria’s external profile over time. At this stage, immediate default risk is low, assuming no sudden, unexpected events such as another shock or shift in policy direction that would raise the default risk,” the review said.

Recently, the World Bank decelerated its economic projections Nigeria’s to 2.9 per cent in 2023 and remain at that pace in 2024 also making reference to the degenerating macro-economic conditions.

This scary scenario does not favour equities market growth as market participants are wont to be lethargic about their investments. Nigeria today is in turmoil given the inability of people to access cash for even petty transactions given the CBN’s redesigning of the Naira and fuel scarcity. But that is far from being the case in recent times.

However, the Vice President of HighCap Securities limited, Mr. David Adonri told Business Hallmark that Nigeria’s equities market was still strong despite all the challenges in the economy because it tends to react to historical events which denies it the ability to react to current happenings. He explains that the market ought to down given the economic woes adding that the contrary was happening instead.

“The economy is at the verge of collapse and the signs are very clear. You can see the energy crisis that they cannot solve. You see the cash crisis that they cannot solve. You are seeing the ratings, international rating agencies, all of them downgrading our sovereign ratings to junk status. Ordinarily all these ought to impact the equities market but they are not because of delayed reaction.

Another reason it is delayed is that the market is hoping that if Peter Obi wins the Presidential election there will be a boost that will nullify those negative factors that are weighing down the economy now. But all hell will be let loose if at the end of the Presidential election Peter Obi does not win. That is when you will see the full weight of the environment bearing on the equities market” he said.

MARKET SURGE

The equities market has maintained a bullish disposition since the beginning of this year 2023. Details show that the NGX All share Index has surged by 5 per cent from 51,595.66 points on January 3, 2023 to close Friday January 10, 2023 at 54,327.30 points. Similarly, the market capitalization gained 5 per cent to climb from NN28.102trillion to N29.590trillion.

The sub-sectors have also gained significantly in the last one month from January to February 2023. For instance; NGX Main Board has gained 0.09 per cent this year, NGX 30 appreciated 0.18 per cent, NGX Premium Index jumped 0.30 per cent, NGXBNK moved up 0.36 per cent and NGXPension added 0.32 per cent. Others sectors all gained significantly. The capital market platforms have become a beehive again as activities are very high.
And the Nigerian stock market has continued to be upbeat since the beginning of the year. Reports show it has emerged the best performing market in Africa and the world.

Whereas this is no mean performance, investors are still jittery and do not seem to have convincing confidence in the market in the short to long run given the uncertainty in the political atmosphere.

Market analysts have insisted that the Nigerian economy, though growing but has not shown enough capacity at 3.9% in Q4 2021 to ensure confidence in investors.

As a result they also reckon that the recent bullish market is not sustainable given the harsh operating environment. However, the market has surged analysts believe due to movements in the heavy stocks caused by impressive end of year results that are trickling in.