World Courant
The Nigerian inventory market (NGX) is on a tantalizing run. Final yr it was among the finest performing nations on the earth, with a achieve of 45.9%. However this yr it appears even hotter. We’re solely simply over two months into a brand new yr and it is already up over 30%. No different inventory market in Africa recorded this type of rally. On the finish of February, the NGX All-Share Index had risen 33.71% because the starting of the yr.
One would anticipate that this could imply that the Nigerian financial system and productiveness are booming. However that isn’t the case. The inventory market is just defying each macroeconomic issue that ought to pull it down. Final yr, the naira skilled its worst interval since democracy was regained. It reached an all-time low of N1,534/$ within the official markets and N1,910/$ within the parallel markets. Many corporations have been burned to the core by this one flame.
In accordance with the Producers Affiliation of Nigeria, about 767 manufacturing corporations have ceased operations, whereas 335 had been in misery as of 2023. It was additionally stated that companies had N350 billion in unsold items final yr and capability utilization fell to 56%. Multinational corporations equivalent to Unilever, GSK, P&G and others have moved their operations out of Nigeria previously yr. It could be the quickest sequence of exits by multinationals in a long time. Why? Excessive manufacturing prices, forex shortage and low demand. The official inflation fee is 29.9% and rates of interest lately reached 22.75%.
Honorable Patrick Umoh, Member of the Home of Representatives, stated: “Multinational corporations are exiting or closing operations in Nigeria attributable to financial uncertainties, difficult enterprise circumstances, lack of electrical energy, continued devaluation of the naira, excessive taxes, insecurity, poor infrastructure, port congestion and strict authorities insurance policies.”
Producers will not be alone. MTN Nigeria, the nation’s largest telecom firm, reported its first after-tax loss (N137 billion) since itemizing on the Nigerian Inventory Alternate. Karl Toriola, CEO of MTN Nigeria, stated: “The numerous devaluation of the naira in 2023 resulted in a considerably increased web overseas change lack of N740.4 billion (2022 restated: N81.8 billion), mirrored in web financing prices. leading to a reported loss after tax of N137.0 billion, in comparison with an adjusted PAT of N348.7 billion in 2022.”
Much more essential is the decline in overseas capital inflows. International funding inflows into Nigeria declined 26.7% from $5.3 billion in 2022 to $3.9 billion in 2023. The banking sector had it even worse: inflows fell by 60% to $832.64 million.
So if the outlook is so bleak, why is the inventory market so bullish? One attainable clarification is that the Nigerian inventory market is comparatively small relative to its financial measurement. The present valuation is about 15% of Nigeria’s GDP – deeply undervalued. And most of that valuation – about 70% – comes from a handful of large-cap corporations. This provides traders the impression that it’s nonetheless very early.
What’s extra, traders have been betting on coverage adjustments that would make huge corporations extra worthwhile. For instance, power shares rose final yr on information that NNPC would now not be the only real importer of gas. Financial institution shares additionally rose as traders realized the devaluation of the naira would enhance the worth of dollar-denominated property. The Large 5 lenders alone (FBN Holdings, UBA, GTCO, Entry Holdings and Zenith) earned N2.3 trillion of the foreign exchange conversion income within the half yr, UBA accounted for round a 3rd of the haul.
One other issue was that pension funds and different institutional traders shifted from mounted revenue property to equities. Inflation outpaced bond returns and fund managers rushed to the inventory market to spice up efficiency. In accordance with the Nationwide Pension Fee, pension funds invested 1.4 trillion euros (53% extra) within the inventory market within the first 9 months of 2023.
The Nigerian inventory market defies financial actuality
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