Elections: Investors Cautious as Stock Market Crosses N30trn Market Capitalisation

Amid the tension associated with the 2023 general elections, the stock market of the Nigerian Exchange Limited (NGX) on Monday crossed the N30 trillion mark in terms of market capitalisation, setting a new record as domestic investors shunned high risk stocks and focused more on investment in fundamental stocks.

However, Nigerian bonds are posting some of the best gains in emerging markets as investors bet that ruling-party candidate Bola Tinubu, who’s taken an early lead in the nation’s presidential election tally, would offer reforms to pull Africa’s largest economy out of a fiscal mess. Five of the West African nation’s dollar bonds ranked among the 10 best performers on Monday in a Bloomberg index of 71 emerging and frontier nations. The country’s sovereign risk premium narrowed the most this year on Monday, according to JPMorgan Chase & Co. data. The equity benchmark in Lagos rose to an eight-month high.

Meanwhile, the stock market so far in 2023 has appreciated by N2.23 trillion to the N30.140 trillion it closed yesterday, from the N27.915 trillion it ended trading in 2022. Also, the NGX All-Share Index gained 7.96per cent to 55,328.42 basis points from 51,251.06basis points the stock market closed for trading in 2022.

Foreign participation in the local bourse has so far moderated in recent years, due to issues around foreign exchange liquidity and monetary policy of the Central Bank of Nigeria (CBN) over rising inflation rate. 

Analysts attributed this to unimpressive yield in fixed income securities, pushing investors to buy up fundamentally strong stocks with attractive dividend yields.

Historically, the market has typically experienced volatility during election season with some notable years, particularly the 1999 election – which saw change from military rule – and 2015 election – which saw the first incumbent defeat at the polls – experiencing declines pre-election.

The positive domestic investor sentiment, according to analysts was driven mostly by strong earnings released and dividend pay outs announced by companies in the wake of earnings season.

The likes of BUA Cement Plc, Dangote Cement Plc, and Nigerian Breweries Plc, recently announced their 2022 financial results and declared dividends to shareholders.

Specifically, the management of BUA Cement recommended for the approval of shareholders a payment of N2.80k dividend per 1 ordinary share of 50 kobo each, out of the profits declared in 2022 as against N2.60 paid to shareholders in 2021, while Dangote Cement for the second consecutive years proposed dividend of N20 per ordinary 50 kobo share.

In addition, Nigerian Breweries also recommended to shareholders a total dividend of N13.87 billion, that is, N1.43 kobo per ordinary share of 50 kobo each.

The total dividend of Nigerian Breweries comprised of an interim dividend of N3.28, which was 40 kobo per share, and a final dividend of N10.58 billion, which was N1.03 kobo per share.

These companies, among others have continued to appreciate as investors continued to take position due to 2022 dividend pay-out.

Speaking on the outlook of the stock market in 2023, the Managing Director/Chief Economist at Analysts Data Service and Resources Limited, Dr Afolabi Olowookere, disclosed that while recent evidence suggested the market performance during pre and post elections comes out negative, it is expected that the stock market might close in the negative territory at the end of the year.

According to him, “In the last three years of election, the market had closed in the negative and so looking at it, stock market returns might likely close at -16 per cent at the end of the year and this will be centered on factors like uncertainties around the outcome of the elections, low capital inflows and rising inflation.”

Analysts at Investment One in a report titled, “2022 review and 2023 macro-economic and financial market outlook” had noted that the direction of the stock market would be largely determined by the trio impact of fixed income yields in tandem with monetary policy, corporate actions, and election turnouts.

“Ditto to our outlook of tepid movement in yields in the fixed income space and expectations of a less aggressive hawkish tone from the CBN, negative real returns should remain relatively high in the fixed income space giving room for alpha-seeking investors diverting more funds to equities as it remains a solid channel for positive real returns.

“For corporate earnings, we are cautiously optimistic of a positive earnings performance in 2023 given the negative impact of high inflation pressures, increased monetary policy tightening and forex instability. Although we expect a broad-based resilient performance, we do not see a significantly upbeat performance as the aforementioned factors remain deterrents,” the report added.

An analyst with Parthian Securities, Azeezat Awonuga, whilst commenting on the market with CNBC Africa said that investors were poised to hunt for gains in the stock market as the fixed income yields have moderated in recent times.”

 Kayode Tokede

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