Nigeria: Analysis – What Is Driving Nigeria’s Stock Market Boom?

The all-share index, which indicates the general market movement of stocks on the NGX, has hit several record levels since the middle of last year.

What could be the propelling force of an equity market that has almost doubled in value in eight months when other key macroeconomic indicators like inflation, exchange rate, and lending rates are pretty much grim?

What magic wand does the Nigerian Exchange wield to merit the prestige of being the world’s best-performing stock exchange this year, yielding 35.3 per cent in January alone, when foreign capital inflow, once the lifeblood of the market, is now significantly low?

Stocks are having their moment in Nigeria, gaining a major boost around the middle of last year when President Bola Tinubu introduced a slew of market-friendly reforms that wowed investors.

The immediate catalyst of growth was the announcement of the abolition of popular but costly petrol subsidies which had been a big drain on the government purse, gulping N4.4 trillion in 2022 alone.

Following this was the news that the fuel importation monopoly of the state-owned oil company NNPC Limited had ended, opening the door for other oil firms to partake. It spurred immediate interest in energy stocks, which drove the overall market in early June, with the likes of Eterna Oil, Conoil and MRS leading the charge.

The market rode on that wave until it found another stimulus to drive the momentum further.



Allowing the naira to sharply drop by around 40 per cent in mid-June created a boon for banks that have assets denominated in foreign currency as the value of such assets accelerated in naira terms after conversion.

PREMIUM TIMES estimates that the Big 5 lenders (FBN Holdings, UBA, GTCO, Access Holdings and Zenith) alone earned N2.3 trillion from foreign exchange/foreign currency translation gains at the half-year, UBA taking approximately a third of the booty.



One big factor that kept equities soaring in 2023 was the shift of pension funds and other institutional investors from fixed-income assets into stocks.

Nigerian bonds had had to grapple with negative real yields since at least June as inflation rates outpaced the nominal interest rates of bonds, forcing investors like pension funds to dump them and look elsewhere for assets promising better returns.

That implies that bond investors would, in reality, be recording losses were they to hold on to their investments till maturity because such investments would be worth less at expiration than the original principal because of the lower time value of money even when the proceeds (principal plus interest) seem on paper to be higher than the amount originally invested.

For this reason, pension managers and institutional investors were inclined to reallocate some of the assets in their portfolios and direct the proceeds to stocks, which were offering more attractive yields.

In the nine months to September, pension funds’ investment in Nigerian equities climbed 53 per cent to N1.4 trillion, according to industry watchdog National Pension Commission.

The pension sector’s investment in the equity market totalled N588.1 billion for the year.

Banks’ recapitalisation push

To boost the capital adequacy of lenders and help the Nigerian government achieve its dream of N1 trillion economy in 2030, Olayemi Cardoso, the Central Bank of Nigeria’s chief, told bankers in November that banks would be required to raise their capital levels.

The move further set the equity market on a bull run and drew greater interest to bank stocks notably the Big 5, with the NGX Banking Index touching its all-time high of 1,099.45 basis points on 16 January.

“Generally, for the recapitalisation, we will likely see mergers and acquisitions. We will continue to see investors take positions across the banking stocks that are likely to benefit from this,” Olumide Sole, sub-Saharan Africa banking research analyst at investment bank Vetiva Capital Management told PREMIUM TIMES.

The strong performance of bank stocks “will definitely continue to spur significant upside” in them, Mr Sole added.

The all-share index, which indicates the general market movement of stocks on the NGX, has hit several record levels since the middle of last year including, last month, its crossing of the 100,000 basis points mark.



Yet, the Nigerian equity market is not yet running at its full potential. The lifeblood of the market in the years 2014, 2015 and 2018 were foreign portfolio investment flows, accounting for 57.5 per cent, 53.8 per cent and 50.9 per cent of activities respectively, according to NGX Domestic and Foreign Portfolio Investment Reports.

Foreign participation has been on the wane since 2019, sliding to as low as 11.5 per cent last year as a perennial dollar scarcity kept international investors at bay, stoking in them the fear that they might not be able to redeem their investments when they want.

It means if foreign portfolio flows were to regain their pre-pandemic levels, especially those of the years 2014, 2015 and 2018, or even surpass and sustain them, Nigerian stocks could be in for another big boom.

“Today, I will say we have a situation where a lot of portfolio investors are very interested in coming back to the Nigerian market. It’s incredible,” Mr Cardoso said during an interview with Arise TV aired on Monday.

“And if there is any group that has taken an interest, very methodical interest in understanding the reforms that have taken place, in understanding it and see how it is taking the country in the direction they believe is the right one, it is the foreign portfolio investors.”

Dangote Cement’s magic wand

Since January, the market has been riding on the momentum created by elevated buy interest in the shares of Dangote Cement, which has returned 139 per cent this year, making it Nigeria’s best-performing stock.

Until January, Dangote Cement, which closed trade at N763 per share on Monday, had never moved past N370 since listing at N135 per unit in Lagos in October 2010.

The run at Dangote Cement’s shares has been led by the chairman of FBN Holdings and Geregu Power, Femi Otedola, who has been racking up shares in the corporation to the tune of N6 billion as of 19 January.

A sharp jump in Dangote Cement shares not only catapulted the company to the position of Nigeria’s biggest company by market value after leapfrogging Airtel Africa and MTN Nigeria but also boosted its majority shareholder Aliko Dangote’s wealth by $6.9 billion in a few weeks, according to Bloomberg Billionaire Index.

The development is a relief of sorts for the company, which said in the past that its shares were undervalued, prompting it to execute two different share buybacks to boost its valuation.

Dangote Cement is the “only Nigerian cement company with two export terminals and a substantial export capacity,” Mr Otedola told Bloomberg in an interview as part of the reasons for investing in the company.

He said he would announce his stake once it reaches the five per cent statutory minimum that will require him to make a public disclosure.


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