Investors are in an optimistic mood as the NGX this week has soared to new highs, indicative of a Santa Claus rally.
This week, the NGX’s all-share index has appreciated by 1.39%, closing at 73,397.71 points as of December 20, 2023, representing an all-time high in the market.
Equities have also gained N551 billion this week as the market’s capitalization has appreciated above N40 trillion for the first time.
What is a Santa Claus Rally?
The Santa Claus rally is a term used to describe a seasonal increase in stock prices that often occurs in the last weeks of December and extends into the beginning of January. It’s named after the festive season and the idea that investors tend to experience a boost in stock markets during this time.
For the NGX, the concept of the Santa Claus rally can be linked to two factors, which are:
Portfolio adjustments
- Fund managers, institutional investors, and retail investors usually engage in portfolio rebalancing at the end of the year. This leads to increased buying activity, which potentially boost stock prices.
- For example, signs of portfolio rebalancing can be seen in Infinity Trust Mortgage Bank which has gained 33% this week alone. It can also be seen with Multiverse Mining and Exploration that has gained 16.8% this week alone.
Market Sentiment
- This year, the market sentiment in the NGX has been bullish as it has recorded a year-to-date return of 43%, its best yearly return since 2020.
- This factor has significantly contributed to the market’s performance this period, as optimism from the year has spilled into the holiday season, with investors being bullish and optimistic about 2024 in the NGX.
What experts are saying
Adebayo Adebanjo, a Senior Analyst at CardinalStone Securities linked the positive performance to investors’ confidence in banks.
He noted,
- “Typically as the CBN returns to orthodox monetary policy practices, it will bode well for the overall banking industry.”
- “The view is that Tier-1 banks are well insulated against any capital adequacy shocks vis-a-vis Cardoso’s statement about a possible recapitalization exercise, thus investors may be comfortable.”
He also noted that the increase in foreign portfolio investment was a factor, adding that foreign portfolio investors typically like investing in banking stocks.
Adebayo also noted,
- “Finally we are seeing portfolio rebalancing activities ahead of the new year. So, you’d see increased allocations to banks as portfolio managers position ahead.”
Boniface Okezie, the President of the Progressive Shareholders’ Association noted that portfolio rebalancing was the major factor responsible for the observed gains. He mentioned that as investors closely watch the financial performance of listed companies over nine months, it’s helping them prepare for potentially higher dividend payouts by the end of the financial year.
He said,
- “The year is coming to an end, and investors are taking positions based on the financial performance of listed companies so far. People are using the data available right now to forecast the year-end financial performance so they can track how much dividend payouts they can receive.”
- “This factor is causing a lot of movement in the market at this period.”
- He also noted that in Nigeria, the NGX is looking like the most viable investment option right now, considering the volatility of the Forex market. Adding that “people are now channeling their energy towards equities.”
