By Okey Onyenweaku

Analysts may have missed the mark, especially when it comes to predicting the markets this season. Despite the odds, the equities market has remained impressive.

With the NGX All share Index standing at 42,049.14 as at Friday October 29, 2021, the equities market has seemingly gained 12 per cent in the last five months, up from an ASI of 37,585.25 basis points as at Monday June 28, 2021.

This seems unusual and contradicts the assertion that the capital market is usually a reflection of the economy. But despite the fact that very unfortunately, the Nigerian economy has remained weak and is indeed faced with a drought scenario, the equities market is proving to be an outlier.

This notwithstanding, not many Nigerians are optimistic that the economy of the country has much to offer them given the excruciating pains pervading the environment and the general state of affairs. While many believe that the politics of the country is incapable of creating an enabling atmosphere to nudge the economy forward, others have listed mis-governance, high insecurity, lack of productivity among others for losing hope in the growth trajectory of the economy.

The challenges are numerous, a former managing Director of one of the big banks who would not want to be mentioned in print told Business Hallmark.

Compounding this is the negative impact of Covid-19 which joined other factors in ensuring that Nigeria plunged into a recession in the second quarter of 2020. However, the economy slowly rallied to grow by 0.11 per cent at the end of the fourth quarter; grew again by 0.51 in first quarter 2021 and then by a COVID-reversing 5.1 in second quarter of 2021, up from a -6.1 negative position in 2020.

Yet this does not change the pessimism of many who believe the economic managers and the government are still not on the right path more so when other core economic fundamentals remain largely southward.

Going to deeper grounds, recent statistics reveal that the rate of unemployment, the second highest in the world is 33%. At the same time, the underemployment rate stood at 22%; even as inflation, which had hit above 18 per cent earlier in the year is still high at 16.01 per cent. At the same time, Nigeria has accumulated a total debt stock of N36trillion which is even still growing.

Unfortunately, the more dreadful aspect of it is that the federal government spends 90 per cent to service the loans.

At this rate, it is difficult to understand the magic the government would perform to turn around this distressed condition.

Despite the above not too comfortable picture, the World Bank raised its projections for Nigerian economy from 1.8% earlier to 2.4per cent in 2021.

In January, the Bretton Wood institution had projected a 1.1 percent growth rate for the country in 2021 after the Covid-19-induced recession in 2020.

‘’Economic growth has raised living standards around the world. However, modern economies have lost sight of the fact that the standard metric of economic growth, gross domestic product (GDP), merely measures the size of a nation’s economy and doesn’t reflect a nation’s welfare. Yet policymakers and economists often treat GDP, or GDP per capita in some cases, as an all-encompassing unit to signify a nation’s development, combining its economic prosperity and societal well-being. As a result, policies that result in economic growth are seen to be beneficial for society.

‘’We know now that the story is not so simple – that focusing exclusively on GDP and economic gain to measure development ignores the negative effects of economic growth on society, such as climate change and income inequality. It’s time to acknowledge the limitations of GDP and expand our measure development so that it takes into account a society’s quality of life’’ a 2019 Harvard Business Review had noted. Growing the GDP appears to be Nigeria’s priority.

Yet Nigeria for which 70 per cent of revenue comes from crude oil priced at above $80pbd, has all her focus on GDP that still grows very slowly.

While the per capita income stood at $2,073.783 and over 100million survive on $1.9 a day, the equities market remains stable and more of the times bullish than bearish.

Unfortunately too, the 2021 budget runs a deficit of N5.2trillion representing 3.6 per cent.

These have not deterred the equities market which gained over 50per cent at the end of business year 2020 and is still looking impressive in the third quarter 2021. Yesterday Friday October 29, 2021 the All share index closed higher by 0.2 per cent to 42,049.35 from 41,961.14 points on Thursday October 28,2021. In the last five months the market has appreciated 12per cent, a false indication of impressive economy.

Whereas analysts seem divided on the fundamentals of the market but they posited that various reasons responsible for the bullish disposition of the market. But majority of them believe that any time the price of crude rises as the case presently that crude price is $80pbd and above investors in Nigeria become hopeful and encouraged. Others have also pointed that the fact that the economy was recording growth no matter how small could be enough encouragement to invest in the market. There is also a consensus that the Nigerian market is always attractive given that stock prices are cheap compared with stocks in the developed economies.

After all, the market appears to be garnering momentum again given impressive results that are trickling in from companies in the second quarter 2021. Most banks and other firms are also paying good interim dividends in the period ended June 31, 2021.

These activities and other events seem to have boosted confidence in the market as well as propelled a surge.

Managing Director of High Cap Securities limited, Mr. David Adonri agrees that whereas the economy appears to be struggling in the eyes of the people on the street, the numbers are saying a different story. Adonri noted that rising price of crude, growth in Gross Domestic Product (GDP) and the reduction in inflation among other factors are some of the factors propelling the equities market and attracting investors.

Another financial analyst with the Renaissance Group, Mr. Olisa Egbunike told Business Hallmark in a telephone interview that discerning investors need not be told when to take positions in the market. He noted that those with the wherewithal are taking advantage of the weak Naira and other challenges to mop up the stocks at the moment, while hoping for better times going forward.

On their part, the analysts at Cordros Securities said: “According to the September Domestic & Foreign Portfolio Investment report of the Nigerian Exchange Limited (NGX), total transaction value at the domestic equities market increased by 32.1% m/m to NGN118.15 billion in September (August: NGN89.42 billion) – the highest since April (NGN159.93 billion). The increase was mainly due to a 46.4% m/m increase in domestic transactions (79.4% of total transaction value), reflecting robust participation of institutional investors (+92.6% m/m vs August: NGN32.21 billion). Meanwhile, foreign transactions declined by 4.0% m/m to NGN24.35 billion. We highlight that the total transaction value at the local bourse printed NGN1.33 trillion in 9M-21 (9M-20: NGN1.34 trillion)”.

‘’The bullish run in the local bourse persisted for the seventh consecutive week as investors flocked into bellwether stocks following broadly impressive quarterly earnings released’’, added the Cordros Securities analysis.

BH recalls that in the corresponding period of 2008, the market maintained a bullish disposition and investors smiled to the banks even as the major indicators attained unprecedented heights.

The market capitalization peaked at about 13.1trillion and the All share Index gained a giddy height of 66,551.84 basis points on March 5, 2008. Most of the equities grew bullish and the Nigerian Capital Market was thrown into frenzy.

The market became the toast of the Nigerian Business community, with traders, civil servants, farmers and even students making equity investments.

Many analysts noted that the Nigerian Stock Exchange (NSE) became a beehive of activities with both investors and speculators scrambling to make a kill. Some individual stocks recorded over 100% appreciation while others edged up by 50% and above.

The one million question in the mouth of many, is how sustainable is the bullish market?

The exchange has just the demutualized and has moved from operating as a not-for-profit, member owned entity and has become a profit-driven, limited liability company which is accountable to its shareholders.

The Nigerian Stock Exchange (NSE) has just joined the league of Johannesburg Stock Exchange and Nairobi Stock Exchange, which are already publicly listed companies. This has resulted in the creation of a new non-operating holding company, the Nigerian Exchange Group PLC (NGX Group) with Mr. Oscar Onyema serving as its Group Chief Executive Officer (GCEO).

Under the demutualization plan of the Nigerian Stock Exchange, a new non-operating holding company, the Nigerian Exchange Group Plc (‘NGX Group’), has been created. The Group has three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent regulation company; and NGX Real Estate Limited (NGX RELCO), the real estate company.