In a sign of resilience, Nigerian stocks end 2022 with a 20% return

As in recent years, stocks are having their moment in Nigeria. However, the optimism fueling that trend in 2022 was unusually strong for a year that had enough wrecking balls to tip Nigerian stocks south.

Returning 20 per cent or N4.7 trillion at the sound of the closing bell at Lagos Customs Street on Friday, Nigeria’s main stock index had swum against the trend in the broader global stock market, where stocks had lost as much as $18 billion or more. 20 percent from 07:00 hours of the same day, according to the MSCI All-Country World Index (ACWI).

MSCI ACWI Tracks the yield of approximately 3000 shares in 48 developed and emerging market countries.

Performance for 2022 compares to last year, when Nigerian stocks delivered 6.1 percent or N471 billion. The Nigerian stock market has posted positive returns for at least three years in a row, the biggest in 2020, when it returned more than 50 percent as the world’s best-performing stock index, according to Bloomberg rankings.

Investors’ fierce appetite for shares took a new turn during the year, catapulting the main equity index to 54,085.3 on May 27; that was the pinnacle the market had reached in almost 14 years.

That the Nigerian stock market had a remarkable outing in the year Bloomberg described as “the worst for stocks and bonds in more than a decade” appears to be a testament to its potential to weather days of ferocious storms and rally domestic participation at a time when the inflow of dollars from foreign investors has dwindled. reduced to a mere drip.

Foreign participation in the market has been in a relentless decline since 2018, when foreigners made up 50.7 percent of the total transaction value. That ratio fell to a low of 16.7 percent in the year to November, according to data from the Nigerian Exchange (NGX) Limited’s Domestic and Foreign Portfolio Investment Report.

Nigeria’s foreign portfolio investment reached 57.5 percent in 2014, but the nightmare of dollar shortages has kept international investors away from the market in recent years as they fear the currency crisis of the country may make it difficult to rescue their investments. But that is only one aspect of the problem.

Analysts say the refusal by NGX and the securities market regulator, the Securities and Exchange Commission, to revise the free float rule to reduce directors’ shareholding in companies and increase the proportion of regularly traded shares as PREMIUM TIMES’ report highlighted last year continues to stand in the way of foreign market participation.

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Institutional investors often discourage putting their money into stocks with a small free float because they tend to be volatile.

With Nigeria heading to the polls in February, portfolio investors from abroad are wary of investing their money in Africa’s largest economy to avoid uncertainty.

If there were a number of postponements for foreign investors during the year, there is a feeling that the participation of local players in stock trading is expanding, with 83.3 per cent of the total trade for the year executed by Nigerians. But it is worrisome that the gap between the participation of retail investors and that of institutional investors continued to widen. At N1.2 trillion, the latter contributed more than double what its retail counterparts accounted for.

There were other turbulent times for stocks during the year and that Nigerian stocks were able to buck these trends is a miracle.

Perhaps the most formidable threat to equities in 2022 was the four consecutive increases in benchmark interest rates by the Central Bank of Nigeria, marking the country’s longest unbroken cycle of monetary tightening in a decade and a year.

That aggressive tightening prompted the main bank to raise rates by 500 basis points in an unorthodox move to curb inflation in the country, one of five central banks on the continent that has raised borrowing costs by at least 5 percentage points.

Portfolio managers often move funds from equities to the fixed income market, where returns often become more attractive after rates rise.

But Africa’s second-biggest stock market, in rare invincibility, weathered the storm. The Oil & Gas Index emerged as the best performer of the five sector indexes tracked by the stock market, gaining 34.7 percent. By contrast, the insurance index was the smallest of the litter, posting a negative return of -0.06 percent.

The NGX 30, the index that tracks the top 30 of the 157 publicly traded stocks in terms of liquidity and market capitalization, returned 9.8 percent.

The 5 best performing stocks

Multiverse mining and exploration: 1,890%

Wema: 442%

Mayer: 393%

Academy P: 158%

Champion: 134%

The 5 worst performing stocks

Regal Insurance: 51%

Livestock feed: 49.3%

Global spectrum power: 40.8%

Sunu Guarantee: 35.6%

University Press: 35.4%