Nigeria’s Stock Market Bull Run: Will It Last?
The Nigerian stock market is experiencing a significant bull run, with the All-Share Index (ASI) reaching its highest level since 2008. Although the Tuesday close saw a 1.99% decline in market activities, the year-to-date return stands at an impressive 18.47%. This means that an investor who put money into all the stocks listed on the local exchange would have gained this margin by now. However, this average return masks the variations across industries, sectors, and individual stocks.
Some stocks have performed extraordinarily well, with their prices doubling, tripling, or even quadrupling since the beginning of the year. Stocks like Tripple Gee, Eterna, and Transcorp have experienced gains of up to 300%. This surge in prices has contributed to the overall positive performance of the market.
The current bull run can be attributed to several factors. Firstly, the new political atmosphere in Nigeria has fostered a sense of stability and confidence among both local and foreign investors. The reforms implemented by the government have been well-received and are seen as positive for the economy. Additionally, policy pronouncements, such as the unification of exchange rates, have attracted the attention of foreign investors who were previously deterred by restrictions on foreign exchange. While these investors may not have returned to the market yet, they are certainly considering the Nigerian market as a viable option.
Looking ahead, it is likely that more interest will be shown in Nigerian equities as stability returns to the macro-economy through policy reforms and global market trends. However, sustaining this bull run might not be as easy as it seems. Despite the positive market sentiment, there are still underlying challenges in the Nigerian economy. The manufacturing industry, a key sector, continues to struggle with high inflation and infrastructure constraints. The recent removal of fuel subsidies and the potential increase in electricity prices will further increase production costs and put additional pressure on manufacturers.
Furthermore, the Stanbic IBTC’s Purchasing Managers’ Index for June indicated a decline in business confidence following the removal of subsidies. Prices of goods have spiked, and consumer goods inflation persists. This could potentially lead to consumer resistance and affect the performance of manufacturers. As a result, the stock market price list reveals that manufacturers are not among the top gainers this year.
The trajectory of prices on the stock market will heavily depend on various economic indicators, including inflation and the Purchasing Managers’ Index. Market behavior can be unpredictable, as investors often react before thoroughly reasoning. While the current positive market momentum is driven by expectations, it remains to be seen whether companies will meet these expectations when their earnings reports for the quarter start rolling in.
In conclusion, Nigeria’s stock market is currently experiencing a bull run, driven by a stable political environment and promising policy reforms. However, challenges in the economy, including high inflation and infrastructure constraints, could hinder the sustainability of this growth. The performance of the market will heavily rely on economic indicators and the ability of companies to meet market expectations. Only time will tell whether the current bull run will last.
