The Nigerian stock market gained N400 billion in February, despite the risk of fiercely contested presidential and national assembly elections.
The stock market opened the month of February at a market capitalisation of N11.424 trillion and closed at about N11.868 trillion, representing a N444 billion gain. In fact, there was a massive rally in the days leading to the elections, with market capitalisation rising as high as N12.2 trillion on the 15th of February 2019. However, the stock market pulled back the gains after INEC postponed the elections.
Why February was good for stocks
- Contrary to most reports of a stock market loss in February, stocks closed the month in positive territory gaining 0.34%, compared to a loss of 2.77% in January 2019. This was also the first positive gain since December 2018.
- Investor appetite for stocks helped boost returns in a month that was laden with election campaigns. Analysts believe that the prospects of a new government may have stoked the rally, as investors seize the opportunity of a post-election bounce to buy undervalued stocks.
- Another reason given for the boost was the earning season which officially kicked off in the beginning of February. Some of the largest companies on the Exchange released their annual reports during the month, posting impressive profits.
- The improved economic situation in the country is also considered a boost for investor appetite. Higher GDP numbers and stable exchange rate were among a flurry of positive economic news that may have helped increase investor attraction to the stock market.
Will March be better?
- More results are expected to pour in this month, which would thus expectedly have impact on stock market activities during the month.
- Dividend announcements are also expected to boost market activities during the month as investors seek higher yields on their portfolios.
- With elections now out of the way, predictability in economic policy and direction is clearer, pushing aside some of the uncertainties that weighed negatively on investor sentiments.
- Data also suggest that the month of March typically turns positive, if February ends positive. Since 2013, March has closed in positive following a positive close in February.
- The last time stocks closed in negative territory for March after a positive close in February was in 2009.
- The year 2009 is still regarded as one of the most volatile years for stocks in Nigeria.
As the election season draws closer to an end, investors will shift focus to external factors that could drive foreign investors back into the stock market. With exchange rate stability expected to remain throughout this year (hoping no shock with oil exports and price), investors are expected to return to buying Nigerian stocks which are still considered cheap compared to emerging market peers.