Boost in Capital Market despite Subsidy Removal and Forex Crisis

Investors in the Nigerian equity market have witnessed a profitable year in 2023. The bullish trend has been sustained despite uncertainties, presenting several key factors influencing market trends in 2023.

In previous election years, the Nigerian Exchange Limited experienced negative closures. However, in 2023, it defied this pattern by posting a 19.98% return and maintaining this positive trend post the general elections.

The market hit N30tn capitalisation on the first day of trading after the presidential election, reflecting the optimism of local investors towards the election winner’s policies. According to Tunde Amolegbe, the Managing Director of Arthur Stevens Asset Management Limited, the market’s response to the elections was atypical, signaling a shift from conventional patterns.

The market also responded to escalating inflation by increasing activity in the equity market, which offered higher returns compared to the fixed-income market.

Corporate Acquisitions

Significant corporate acquisitions also influenced the market, such as Femi Otedola’s stake acquisition in Transnational Corporation Plc and a historic trade involving a company linked to Oba Otudeko purchasing over four billion units of shares of FBN Holdings, prompting an investigation by the Securities and Exchange Commission.

Impact of Fuel Subsidy Removal and Forex Harmonization

Following the removal of the fuel subsidy and a directive to the Central Bank of Nigeria to address the forex situation, the market felt the repercussions, with petrol prices nearly tripling, leading to increased transport costs and affecting small businesses and households reliant on petrol generators. Listed oil companies experienced positive impacts as their revenue surged due to global fuel demand.

The harmonisation of the currency market by the apex bank resulted in a floating of the naira, although concerns were raised about its implementation and stability.

Effects of Multinationals’ Exit

Amid the challenging macroeconomic environment, several multinationals announced plans to delist from the capital market and exit the country, potentially wiping N400bn off the NGX market capitalisation. Notable companies included Oando Plc, Glaxo SmithKline Consumer Nigeria Plc, PZ Cussons Nigeria Limited, Union Bank of Nigeria, Capital Hotel, Coronation Insurance, and Procter & Gamble.

Listings and FTSE Downgrade

However, amidst the exits, some companies listed on the market, contributing billions of naira to the market capitalisation. Additionally, the Nigerian equities market faced a downgrade by FTSE Russell, but received an upgrade by Moody’s, potentially attracting foreign investors.

Outlook for 2024

Market operators anticipate positive outcomes from the current administration’s market-friendly reforms, with optimism towards foreign investors returning. Factors such as declining inflation, high interest rates, potential listings, and energy capacity increase are expected to shape the market in 2024.