Nigerian stocks defied the rapid hike in benchmark interest rates, gaining N15.25 trillion in the first five months of 2024. This remarkable performance saw stocks holding their own against fixed income assets.
Major Contributors to the Rally
Driving the stock rally were key companies:
- Geregu Power: Jumped 150.6%
- Dangote Cement: Increased by 105.3%
- BUA Cement: Rose by 72.07%
- BUA Foods: Up by 96.4%
- Julius Berger: Gained 90.07%
Other notable performers included:
- Morison: Up by 58.9%
- Presco: Increased by 52.3%
- Seplat Energy: Rose by 45.7%
- Meyer: Gained 47.6%
- Tripple Gee: Jumped by 92.1%
- Transcorp Power: Up by 55.8%
Market Outperforms African Peers
Nigeria’s stock market, up 32.8%, outperformed African peers from the Johannesburg Exchange to the Nairobi bourse. The overall market capitalisation closed May 2024 at N56.172 trillion, marking a gain of N15.25 trillion or 37.28% from N40.917 trillion at the beginning of the year.
Consequently, the NGX ASI increased to 99,300.38 basis points, achieving a 32.8% Year-to-Date (YtD) performance from 74,773.77 basis points at the end of 2023.
Impact of Interest Rate Hikes
Despite fears that aggressive interest rate hikes in Nigeria would lead to capital reversals from stocks to fixed income, the stock market demonstrated resilience. However, the market is beginning to show signs of losing steam, with a 6.1% decline in April and a modest 1.1% rise in May, according to NGX data.
Investor Sentiment and Political Influence
David Adnori, Vice President of Highcap Securities Limited, attributed the initial stock surge to investor sentiment and the emergence of Bola Tinubu as Nigeria’s President. The confidence in his ability to implement economy-friendly policies energized the stock market. However, this confidence appears to be fading, contributing to the market slowdown in April and May.
“Additionally, the Exchange’s enforcement of compliance, transparency, and a market-friendly environment has encouraged heavy participation in stock trading by both local and foreign investors,” Adnori said.
Role of Retail and Institutional Investors
Retail and institutional investors played a significant role in driving the rally during the five-month period. According to a June 3 note from Lagos-based Coronation Research analysts, Nigerian pension funds’ holdings in the equity market rose by 16% between the beginning of the year and the end of April.