Strong economic fundamentals which can be measured in terms of significant build-up in external reserves, high crude oil prices, improved confidence in I & E window and recovery in the gross domestic product (GDP) have bolstered investors’ confidence in the Nigerian equity market, resulting in the listed stocks appreciating by additional N2.29 trillion in January 2018.
The market capitalisation of listed stocks rose from N13.61 trillion in December 2017 to close on January 31, 2018 at N15.89 trillion. That translated to an increase of 16.80 percent over its closing figure in December 2017. The All Share Index (ASI) added 6,100.46 points to close in January at 44,343.65 compared with 38,243.19 which was its closing figure on December 29,2017, and thus appreciated by 15.95 percent in the first month of the year.
“There is an improved confidence in the Investors and Exporters’ Window (I & E Window), coupled with strong economic fundamentals which we saw in GDP recovery, lower inflation rate, high oil prices at $70/barrel, strong external reserves at about $40 billion and significant inflows into the market from foreign investors.
“In addition, yields on fixed income instruments are beginning to fall in anticipation of lower interest rates and local investors have started to allocate more resources to the equity market”, Rasak Abiola, Head Investor Relations at the United Bank for Africa (UBA), said.
Sustaining the momentum, the NSE Banking Index, Pension Index, Industrial Index and Premium Index all outperformed the market. The NSE Banking Index rose by 23.3 percent to close at 586.16 up from 475.44 in December. The NSE Pension Index increased by 21.9 percent in January at 1,682.28 up from 1,379.74 in December.
The NSE Industrial Index added 409.34 points to close in January at 2,384.93 as against 1,975.59 in December. Also, the NSE Premium Index closed higher at 3,090.56 as against 2,564.13 in December. The NSE 30 Index returned 15.6 percent in January was at par with the ASI.
However, other sub sectoral indexes underperformed the All Share Index. The Main Board and Insurance Indexes rose by 13.3 percent and 13 percent to close 1,941.25 and 157.43 in contrast to 1,713.69 and 139.37 as at December 2017. The Oil 7 Gas index closed higher at 366.19, and that was an increase of over 10.74 percent over 330.69 in December. The Lotus Islamic Index and Consumer Goods Index returned 7.6 percent and 5.8 percent in the first month of the year.
The only exception the positive returns posted by ASI and other sub sectoral indexes is NSE ASeM Index that closed lower by 1.4 percent. The ASeM Index lost 15.64 points from 1,087.32 in December to close in January at 1,071.68.
Compared with the market returns in January 2017, only the NSE ASeM and NSE Banking Index closed marginally higher by 1 percent. The NSE Pension remained neutral to market dynamics in that month. The NSE Insurance the closed at negative 1 percent; Industrial Index, -2 percent; NSE Premium, ASI, Main Board each closed at -3 percent. The Oil and Gas Index closed at -4 percent while the Lotus Islamic Index and Consumer Goods closed at -6 percent and -7 percent respectively.
However, analysts have expressed divergent opinions on the sustainability of the market momentum.
“The valuation of stocks on the Nigerian bourse is relatively cheaper when compared with their peers in other emerging markets. This implies some of these stocks are trading at a discount and there is room for further growth”, Abiola added.
“Fund inflows, political space and relative cheapness of Nigerian stocks compared to emerging markets still need to be linked to how they are expected to drive earnings performance of companies; higher fiscal and consumer spending for healthcare, consumer staples, and materials sector companies, high oil price for upstream energy companies, favourable agricultural policies for the agricultural products companies, more stable FX environment for easing cost pressures for consumer staples companies, and lots more. Based on all the factors highlighted above, it is just natural to expect the tempo to temper as investors re-evaluate and realign”, Meristem Research, said in a note to clients.