The Nigerian Stock Exchange closed a blistering 2017 with its highest return since 2013 (4 years) and the third best in the last 10 years.The stock exchange all share index closed at 38,243.19 compared to a 2016 close of 26,874.60.
This represens a 42% return for stocks for the year ended December 2017.
The index also closed the month of December with a 0.79% gain while the 4th quarter return was 7.91%.
Gains across indices
Apart from the stock exchange All Share Index, all sub indexes also posted impressive gains during the year.
Top 5 Stocks for 2017
Why the Index Performed so well
The Nigerian Stock Market All Share Index performed really well mainly because of the introduction of the Importer Exporter window by the Central Bank of Nigeria in February 2017.
The decision opened the door for an inflow of foreign portfolio investors into Nigeria as well as the anticipation of foreign investment into the country.
Ironically, the opening of the window did not immediately result in a signficant inflow of FPIs. Rather, we observed an outflow of about N109 billion compared to an inflow of N29 billion in March 2017
However, FPI inflows out paced outflows consistently from April 2017 to November 2017.
Local Investors also poured in billions in investment into the stock market in 2017 as they looked to pick up equities that were significantly undervalued following months of bearish runs in 2015 and 2016.
According to data from the Nigerian Stock Exchange, transactions related to Foreign Portfolio Investment into the Nigerian Stock Exchange was about N1 trillion as at November Year to date 2017. This compares to N473 billion same period in 2016.
Total FPI inflow was also N598 billion compared to N237 billion same period in 2017.
There was also significant Domestic Retail investment participation in the stock market with about N364 billion invested, compared to N262 billion the year before.
Domestic Institutional Investors also recorded a massive increase in transactions from about N319 billion to N696 billion
Outlook for 2018
While it is unlikely that the index will record another 45% return in 2018, stocks that still remain significantly undervalued will continue to attract investor participation
We also expect foreign investors to continue to provide liquidity in the system by buying and selling more stocks. However, at N1 trillion there is little room for more foreign investor inflow.
Foreign Investors typically transact between N1 trillion and N1.5 trillion when the market is bullish. However, if we adjust for exchange rate depreciation then one could also argue that there is further room for foreign investor inflows.
We also expect to see significant equity raise in 2018 as listed companies pick up from where they left in 2017.
There might also be major IPO’s or listings in 2018 with the likes of MTN and Interswitch likely to list on the Nigerian Stock Exchange
Mergers and Acquisitions are likely to also to be predominant in 2018, particularly in the Insurance sector. The sector under-performed compared to Banks in 2017 and is poised for a return to growth in 2018.
Insurance stocks are considered penny stocks and attract retail investor patronage. However, that a stock is penny does not mean it is cheap in the context of price to earnings ratio.
We also project a double digit rise in company profits in 2018 compared to 2017. This is on the back of the 9 months results released by most blue chip listed companies.