The Nigerian Stock Exchange (NGX) All-Share Index appreciated by 18.9% to close at 60,108.86 index points in the first half of 2023.

This is the highest point since over 15 years ago when it rose to as high as 63,016.6
Analysts attributed the rally to the policies of the new administration of President Bola Tinubu, the harmonization of different exchange rates, and the floating of the naira.

Equity trading on the Nigerian Exchange Limited (NGX) concluded the first half of the year on a positive note, with the NGX All-Share Index gaining 18.9% and closing at 60,968.27 index points.

This marks a significant milestone for the index, reaching its highest level in 15 years since March 5, 2008, when it stood at 66,381.20 points.

The month of June saw the All-Share Index rise by 9.32%, breaking a four-year streak of losses for stocks during this month. It also represents the best monthly performance for the stock market in approximately two and a half years.

Stocks rally on positive sentiments

Despite concerns such as rising inflation, interest rate hikes, and apprehension surrounding the fallout of the 2023 general elections, investor confidence remained strong, leading to increased buying activity.

The positive sentiment among investors can be attributed to several factors, including the peaceful transition to power following the 2023 elections, favorable policies introduced by President Bola Tinubu’s new administration such as the removal of fuel subsidies, streamlining of exchange rates, and the floating of the naira.

Investors responded to the changes in Nigeria’s foreign exchange operational framework and also viewed President Bola Tinubu’s decision to suspend Central Bank Governor Godwin Emefiele, who had implemented restrictive policies affecting their profits, in a favorable light.

Market performance

Available statistics to the Nairametrics showed that the All-Share Index, which is the broad index that measures the performance of Nigerian stocks, opened the trading quarter at 51,251.06 index points at the beginning of trading in January 2023 and closed at 60,968.27 points at the end of the half-year on June 30, gaining 9,717.21 basis points or 18.9%.

Further analysis revealed that activities on the Nigerian Exchange Limited (NGX) which opened the trading year at N27.915 trillion in market capitalization at the beginning of trading, closed the quarter at N33,197 trillion, hence has earned a year-to-date gain of about N5.282 trillion or 18.9%.

Market analysts believed the renewed sentiment in the local bourse market had also grown following crave to increase capital gains on the back of low prices of stocks owing to upset in the financial market arising from unstable policies and build-up to the 2023 general elections.

Fundamental shift

The Managing Director, of Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe in a chat with Nairametrics said that a Demographic shift has happened in the NGX in the last few years.

“We now have more local institutions and retail investors in the market than foreign portfolio investors. The reverse used to be the case, this shift has naturally reduced volatility in stock prices as the locals are likely to have more faith in the local market than foreigners. That’s why you see the NGX ASI continuing to rise despite all the uncertainties in the environment.”

Amolegbe further said that the expectation that the policies will encourage the inflow of foreign investment is the primary trigger that is causing the stock market rally.

“The second trigger will include the fact that some of these policies will lead to a short-term increase in inflation level and typically stock prices tend to rise along with inflation,” he said.

He explained that the other driver might also be the fact that we are moving toward the end of the first half of the year, and this normally led to portfolio rebalancing by fund and asset managers,

“They rebalance their portfolio every quarter and every half year and this normally results in the stock rally,” he said.

Emergence of Tinubu

The Managing Director, of Crane Securities Limited, Mr Mike Eze said the result of the election which brought President Bola Tinubu stabilized the market.

“At the beginning of the year, there was so much tension and anxiety because of the election. When the election was over, investors saw that the tension did not lead to what was expected, it brought stability to the market.

And once the market is stable, it leads to a rally which means there is adequate demand for stocks in the capital market. So, one of the major reasons that led to stocks’ rally in half a year was the election that led to the emergence of Bola Tinubu as president of Nigeria,” he said.

He noted that policies that are market friendly introduced by the new president such as harmonization of the different exchange rates, the shake-up in the apex bank which trickle down to the money deposit bank, and the floating of the naira were major drivers for the rally.

Eze added that the removal of fuel subsidies further made the country attractive to foreign investors and high-net-worth local investors.

He noted that many investors are rebalancing their portfolios in readiness for half-year results that will hit the market any moment from now.

“Most quoted companies, particularly from the banking sector, have done relatively well and so the expectation is that there will be a sumptuous return on investment.
They are repositioning and re-investing in other sections of the market and by so doing it led to diverse action which led to the rally that we are witnessing this half year,” he said. 

Earning season

Mr. David Adonri, Executive Vice Chairman, of Hicap Securities Limited also in a chat with Nairametrics said that investors were in the earning season and that what investors will get from dividends is one of the factors that drove the demand for shares in the market during the half year.

He noted that the equities market is defying current political uncertainties because investors are futuristic that the prospect for a yield environment is bright.

“Most companies, especially banks, released their 2022 full-year results during the first quarter. The market normally sustains positive sentiment during the earning season. However, the season was within the period of an election, but I think the craving for dividends overshadowed what would have been the impact of the elections,” he said.