The Nigerian stock market, which experienced a remarkable 45.90% return in 2023, is poised for continued growth in 2024, albeit at a more measured pace. Despite historical trends that typically result in subdued market performance during election years, the Nigerian Exchange Limited (NGX) defied expectations, setting new records. This article explores the factors behind the 2023 rally, analysts’ projections for 2024, and the challenges and opportunities that lie ahead for investors.
Key Points:
- 2023 Rally Overview:
- The Nigerian stock market witnessed an unprecedented 45.90% return in 2023, marking the first time in an election year since 2007 that such substantial gains were achieved.
- Contributing factors to the market’s robust performance included reforms by President Bola Tinubu, corporate earnings, and new listings on the NGX.
- Factors Driving 2023 Performance:
- Reforms implemented by President Tinubu, especially in energy subsidies and exchange rate unification, garnered positive reactions from investors, influencing the market’s upward trajectory.
- Corporate earnings and the addition of new companies, such as Seplat Energy, Zenith Bank, and Guaranty Trust Holding Company, to the trillion-naira valuation club, played significant roles.
- 2024 Projections and Analyst Insights:
- Analysts project a continuation of the positive momentum in 2024, albeit at a more modest pace. Factors contributing to this projection include improved macroeconomic conditions, expected growth in foreign portfolio investments, and a stable foreign exchange (FX) environment.
- Cordros Securities Limited forecasts a 11.6% positive return for 2024, highlighting the potential impact of intermittent profit-taking by investors and a possible disconnect between company fundamentals and valuation multiples.
- Risk Factors and Challenges:
- The stock market’s response to the direction of the monetary policy rate (MPR) in January 2024 is a crucial factor. Bismarck Rewane of Financial Derivatives Company Limited anticipates a market correction influenced by MPR adjustments.
- FX scarcity remains a challenge, affecting foreign portfolio investment inflows. Steps taken by the Central Bank of Nigeria (CBN) to clear FX backlog may improve liquidity conditions, but the return of foreign investors could be gradual.
- Opportunities and Cautious Optimism:
- Improved clarity and transparency in the FX market are expected to encourage greater foreign portfolio investment participation.
- Despite challenges, the proposed listing of Dangote refinery and moderation in inflation are identified as potential positive factors for market dynamics in 2024.
As Nigeria navigates through 2024, the stock market presents a landscape of both promise and caution. The positive momentum from 2023 is expected to persist, driven by a combination of economic reforms, corporate performance, and new market entrants. However, challenges such as FX scarcity and the impact of monetary policy decisions necessitate a vigilant approach. Investors are encouraged to balance optimism with a thorough understanding of risk factors, positioning themselves to capitalize on opportunities in this dynamic market.
