Nigerian Stock Market Seizes the Bull by the Horns in 2024
The NGX (Nigeria Exchange Group), the major stock market in Nigeria, has experienced significant gains, pushing its main index beyond the 100,000 index points threshold for the first time. Cement giants and banks have contributed to the market’s positive performance.
As of January 25, the NGX maintained its position as the best-performing stock market globally, closing at 120,149.93 index points. With a return of 36.37% so far in the year, it surpasses Nigeria’s most recent headline inflation rate of 28.9%. The market now boasts more than a dozen listed companies valued at N1 trillion or more.
Dangote Cement Hits Historic N10 Trillion Market Valuation Milestone
In a historic achievement, Dangote Cement, Nigeria’s most valuable company and a cornerstone of Dangote Industries Limited, has surpassed the remarkable milestone of N10 trillion (approximately $126 billion) in market valuation. This monumental feat solidifies Dangote Cement‘s status as the first Nigerian business to reach such a valuation, marking a significant milestone in the country’s economic landscape.
Aliko Dangote, Africa’s wealthiest individual and the primary owner of Dangote Cement, played a pivotal role in steering the company towards this achievement. The recent acquisition of an undisclosed number of Dangote Cement shares by prominent businessman Femi Otedola further contributed to the notable increase in the equity valuation of the cement giant.
Notably, the BUA conglomerate, under the leadership of Abdul Samad Rabiu, has also joined the league of companies with a market valuation of at least N10 trillion. Following Dangote Industries, BUA now stands as the second-largest conglomerate in Nigeria.
Both Aliko Dangote and Abdul Samad Rabiu, recognized as the country’s wealthiest individuals, have seen substantial year-to-date wealth gains in percentage terms, as reported by the Bloomberg Billionaires Index. Their success contributes to the overall positive trend in the Nigerian stock market.
Ayodeji Ebo, Chief Business Officer at Optimus by Afrinvest, attributes the market rally, in part, to investors’ “fear of missing out.” He suggests that strategic news on bellwether shares and sustained interest from new domestic investors are contributing factors, fostering stability in the stock market.
The NGX heavyweights, including Dangote Cement, have reported impressive year-to-date returns, with Dangote Cement leading the way with a remarkable 95.3% increase. BUA Cement follows closely with an 81.3% gain, while BUA Foods and Seplat Energy have posted year-to-date gains of 26.5% and 33.1%, respectively.
Data from the NGX reveals a substantial increase in the institutional composition of the domestic market, rising by 49.74% from N136.52 billion in November 2023 to N204.42 billion in December 2023. Solomon Ogene, Portfolio Manager at Ecobank Wealth and Asset Management, notes that the market’s appreciation in value in January alone has surpassed the total gain recorded in the entirety of the previous year.
Remarkably, the local bourse has outperformed its peers in the African region, Europe, and the Middle East this January, as institutional investors maintain robust buying pressure on Nigerian lenders, further solidifying the country’s prominence in the global financial landscape.
“Banking stocks seem to have gained a lot of traction in 2024, stemming from a pending banking sector recapitalization.
While the market awaits further communication from the CBN [Central Bank of Nigeria], we think that savvy investors are already mopping up shares in Tier 2 and Tier 3 banks, which could be potential targets if the recapitalization is inorganic,” Olaolu Boboye, an investment research associate at CardinalStone Partners, tells African Business.
“Given that most top-tier banks are well-capitalized, this must have fueled investors’ confidence in them. Also, relative valuation indicates that some banks are trading below 10-year historical patterns and seem cheaper than their emerging peers.”
Among the banking industry’s top achievers are Wema Bank, which has gone up by 86.5% in the year to date, and Unity Bank, which gained 73.6%.
Dynamics Driving Nigeria’s Market Rally: Reforms, Earnings, and Investor Confidence
The recent surge in Nigeria’s stock market is attributed to a convergence of factors, with experts highlighting the impact of corporate actions, positive expectations for full-year 2023 earnings, and improved valuations.
Notably, sectors such as banking, industrial, and energy have played a pivotal role in driving this market rally, according to Olamide Akinbola, Senior Portfolio Manager at AXA Mansard.
Reforms Initiatives as Catalysts
President Bola Tinubu’s reform initiatives are recognized as significant catalysts for a substantial economic rebound, as predicted by Morgan Stanley at the close of the fourth quarter. The American investment bank identified potential investment opportunities across various industries, including packaged food and drink, personal care and household goods, healthcare, education, and durable goods like appliances and vehicles.
CBN Efforts and Monetary Tightening
Recent efforts and commitments by the Central Bank of Nigeria (CBN) to clear the foreign exchange backlog and expectations of further monetary tightening have increased optimism regarding the possible return of offshore investors.
The elimination of fuel subsidies, unification of exchange rates, examination of anti-investment policies, and the government’s focus on infrastructure development for job creation have positively impacted all economic sectors, including the capital market.
Role of Domestic Investors
Renewed interest from domestic investors, both retail and institutional, is considered a driving force behind the market rally. NGX data indicates that foreign portfolio investors (FPIs) accounted for N410.62 billion (about $456 million) in transactions in the previous year, while domestic investors contributed significantly with 88.52%, amounting to N3.167 trillion during the same period.
Optimism for a Strong Primary Market in 2024
Market participants are optimistic about a robust and active primary market in 2024, driven by favorable momentum. Unconcluded corporate actions, including mergers and acquisitions, are seen as pivotal in shaping market sentiments. Ongoing strategic moves by companies such as Dangote Sugar Refinery Plc, NASCON, Dangote Rice Limited, SEPLAT, OANDO, GSK, and PZ are influencing investor decisions.
Impact of Dangote Oil Refinery
The commencement of operations at the Dangote oil refinery is viewed as a positive development, particularly for the mid and downstream oil and gas sectors. It has improved sentiments, and companies like Eternal Plc have seen increased traction as major distributors of Dangote petroleum products.
Challenges and Future Outlook
While recent government reforms have positively impacted the Nigerian equity market, challenges such as inflation and fuel price rigidity persist. The resolution of these issues and the government’s commitment to implementing reforms will shape the market’s trajectory in 2024.
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The participation of foreign investors remains contingent on FX policy consistency, and the sustained FX policy direction will play a crucial role in attracting foreign portfolio investors in the medium to long term.
As the market continues to respond to various dynamics, careful monitoring of these factors will be essential in gauging the sustainability of the positive momentum in Nigeria’s stock market.
