By Chinwendu Obienyi
Over the past two months, the vibrancy witnessed in Nigeria’s stock market has been positive amid the scarcity of the naira, political tension and inflation.
Currently, the market’s year to date (ytd) return stands at +8.9 per cent and with investors gaining over N2 trillion in January and February. This points to the fact that the market is set for a positive finish this year, considering that it continues to defy global decline.
Although, it could be said that it is too early to project this, the positive sentiments in the market before and after presidential elections have shown that the projection could be possible.
It is safe to state that this projection is riding on the back of the impressive 2022 corporate earnings from quoted companies, thus pushing investors to take positions in stocks with attractive dividend yields.
It has been weeks since Bola Tinubu of the All Progressives Congress (APC) was announced as the winner of 2023’s presidential election. There is need to look at the APC’s election manifesto which serves as the best guide to the investment implications of his victory.
The APC”s manifesto looks to government spending as the means to achieve growth. In contrast, with the recent GDP growth trend of around 3.0 per cent per annum, the APC wants to achieve an average of 10.0 per cent GDP growth throughout its term in office.
Assuming that the Federal Government is set to vastly increase expenditure then the obvious beneficiary, in broad terms, would be infrastructure. The APC manifesto also has ambitious targets for developing the housing sector which is also to be funded from the public purse, which means that banks would be involved in this process. When infrastructure is mentioned, cement comes to mind and this would mean that there will be an increased demand for infrastructural products from companies like BUA Cement, Dangote Cement and Lafarge Africa Plc.
The general theme in the cement sector is one driven by capacity expansion, utilisation and rising prices. These factors have boded well for the companies which have reported double digit-revenue growth for full year 2022 results.
However, there is a general feeling that the capital market needs to be strengthened, repositioned for accelerated growth and development of the economy. It is often said that the capital market is a barometer of an economy and hence, the capital market needs close attention in order to maximize its array of opportunities.
Speaking during a 2022 NGX Group FY Investors and Analysts Conference Call in Lagos, the Chief Executive Officer, NGX, Temi Popoola, stated that one of the things that gives stock market strong momentum is usually a change of government.
Whilst noting that the exchange is working extensively with the Securities and Exchange Commission (SEC) to make sure that companies within the free zones can access capital from the stock market, Popoola said listings have strong correlation with government’s intentionality.
“Data shows that 90 per cent of the listings we have today are on the exchange are for in some sort of government support. So we are using this opportunity now that there is a change of government, we want to work with stakeholders to make a case for listings and we see the need for this advocacy because the nation itself will need to rely on capital markets to drive revenues to improve liquidity. We do think that a lot of that activity, if done properly, should translate into listings,” he said.
Identifying key areas that the incoming administration should look at, the President and Chairman of Council, Chartered Institute of Stockbrokers (CIS), Oluwole Adeosun noted that both the capital and money market should receive balanced attention from the federal government and promote unified exchange rate of the Naira to encourage participation of foreign investors in the market.
He said, “The fundamentals of the market are getting stronger day by day as a result of so many reasons. The elections actually excite the market, because of the imminent positive changes we expect, irrespective of which of the top candidates win. It signals great expectation and trust.
“We expect the new president and his government to hit the ground running before the inauguration by immediately opening engagement with the capital market community, as that will help in crafting an effective plan of action for the administration. We expect a stable and unified exchange rate which will increase the level of foreign investors’ participation in our market. We also expect policy and positive pronouncements that will boost the confidence of stakeholders.
“Firstly, the new government needs to properly situate the capital market in the scheme of things in the Nigerian economy. The capital and money markets must receive balanced attention for the economy to grow maximally, even optimally as the capital market provides the barometer that measures the state of the economy. Secondly, there is a need to address the issue of trading liquidity. Get the banks and CBN to give more support to Capital Market Operators (CMOs).
“We have to revisit margin lending /trading in the financial markets. Furthermore, persuade the pension funds to invest a lot more on equities, to create that stability that will motivate other high net worths to invest. Also to make the exchange rate stable to spur foreign investments. The government should lend more support to investor literacy, and specifically support CIS with annual grants to enable it to perform and widen its work in this area.”
Adeosun noted that all the three frontline candidates for this election were pro-market activists, adding that the capital market is actually excited that there will be a positive transition in leadership, from a market policy point of view.
For their part, analysts at Coronation Research said, “Our approach is to follow the APC’s pro-growth message and see how it is likely to play out in the equity and fixed income markets. Important caveats are that we do not know how quickly Tinubu will appoint a government nor do we know whether the APC manifesto will be implemented to the letter: on balance we believe that this administration is likely to form itself quickly and execute its agenda professionally and swiftly. Therefore, investors may be advised to look out for the opportunities in listed infrastructure and banking stocks. In the fixed income markets, we will seek confirmation of how this government will fund its plans and adjust our view accordingly.”