Mixed fear has gripped the capital market community as many do not know what to expect going into year 2023.
Whereas the equities market closed the year 2022 in the positive, the clouds are still clogged as to the definite direction of the economy which should in turn drive the market.
However, at the end of business year 2022, investors gained 19 per cent from their investment as the NGX All share index grew from 43,026.23 points on January 4, 2022 to 51,251.06 points at the close of business on December 30, 2022. The market capitalization also appreciated by 24.271 per cent from N22.463trillion to N27.915trillion in the review period. At the close of business in 2022, a total of 201.99 billion units of shares were traded valued at N2.34 trillion in 2022 compared to 174.24 billion shares at N1.91 trillion traded in the previous year
This is no mean performance compared with 2021 when the equities market returned a paltry 6.7 percent performance, a far cry from the 50 per cent gained by the market in 2020, the covid -19 year.
The recent market performance has been hinged on many activities and challenges which include impressive results from the blue chip firms.
But this year 2023, the equities market is already on a positive note having gained 0.87 per cent in both NGX All share Index and market capitalization. Though many say its still early to predict the market since no one can do that with certainty.
That notwithstanding, analysts are still not comfortable with the macro-economic environment which is littered with slow business activities, a high Inflation rate, slow GDP growth, a slump in foreign investment, exchange rate depreciation, and rising energy prices amongst others.
In fact, there is a consensus that since markets are very volatile, a situation could arise when the stock prices tend to fall even in upbeat economic situations and vice versa. They maintained that if the GDP is rising and the economy looks upward, the same sentiment is likely to be reflected in the stock market prices as well, but not necessarily in the short term.
However, they warned that investing in the market is more challenging when you have high inflation, rising interest rates, and supply constraints caused by the Ukraine conflict and lockdowns in China.
‘’It’s hard to succeed in the market when you’re feeling the higher prices at the grocery stores, gas stations, and others, they added
Unfortunately, these conditions are pervasive and even worse in the Nigerian operating environment.
The examples include the high inflation rate which has hit the roof top at 22.7 per cent in 2022; high unemployment at more than 40 per cent; underemployment above 22 per cent; and high insecurity caused by the Boko Haram sect, insurgents, kidnappers and bandits. It is much more difficult to transact business in Nigeria presently.
At the same time, Diaspora remittances, of course is now lower than the $23.55billion it attained in 2020 while investors both domestic and foreign are scared stiff to bring their resources here after exiting Nigeria.
Also remarkable is the country’s heavy debt burden at almost N44.6 trillion and expected to hit N77 trillion and above if the N23trillion the CBN’s overdraft to the federal governmens is securitized. Of the budget of N21.8trillion for 2023, the budget deficit stood at N11.3trillion as over 100 per cent of revenues are now used to service debts. Experts fear that we are again plunging into another round of debt trap as the country witnessed before 1999.
At the same time, insecurity has not only hobbled agriculture, many parts of Northern Nigeria have been taken over by bandits such that not much business activities can subsist.
Flood has disabled a substantial part of the farms as millions of people have been pushed out of their homes. The World Bank just noted that Nigeria’s revenue to GDP ratio hovered between five and six per cent last year and remains the lowest in the world. These days almost everybody is aware that Nigeria is the poverty capital of the world. Recently, the world bank recorded that over 133million Nigerians are multidimensionally poor. The Naira which exchanged at N220/$ by June 15, 2015 has depreciated by about 100 per cent to N750/$ this December 31, 2022.With the above scenario it is difficult to expect any magic at the equities market.
With the above conditions still pervasive in Nigeria’s operating environment there are mixed feelings about the prospects of the equities market this year.
A financial analyst, Olisa Egbunike told Business Hallmark that since the conditions that drive the market are still lacking year 2023 may not be as impressive. Egbunike noted that there was no indication that the government wants to leverage the capital market in its plans for the economy in face of huge debt over hang at this point in time instead of debt instruments.
According to him, the new finance bill has high tax input which will reduce hugely reduce the spendable incomes in the hands of both firms and individuals. This he said would have adverse implications for the equities market when people have little or no money to invest.
‘’From February 25 of this year when the election must have been won and lost the economy will remain in limbo until hand over in May given that the present leadership will definitely not bother about the economy as they will be preparing to exit office’’ , he said.
In his own view, Dr. Afolabi Olowokere of Analysts data and services resource believes that with global economic growth which is projected to slow down; inflation which prompts monetary policy tightening; war in Ukraine which causes economic damage and the impact of Covid -19 pandemic which still lingers, that Nigerian will remain challenged.
Another analysts who pleaded anonymity, told BH that it was dicey to predict the market given the numerous challenges the country has been facing. He stated that gloom was lingering given the extent of Nigeria’s problem which will definitely challenge the new government who ever wins.