The Nigerian Stock Exchange (NGX) witnessed significant gains in January 2024, building on the positive momentum from the previous year. In the first month of the year alone, the All-Share Index (ASI), the benchmark index for the NGX.
The index closed at 101,154.46 points on January 31st, representing a 35.28% increase from the beginning of the month.
This was the highest monthly gain for the NGX since at least January 2023.
This is barely three weeks into February and we are already 5% up. Pretty impressive considering the fact that we had an impressive January already.
The “bull run” that started in the NGX markets have been attributed by experts to the Naira devaluation. A move that saw the Naira crash by almost 50% in 2023 alone. Smart investors who noticed the imminent decline of the Naira made moves to protect assets denominated in Naira, hence the influx into Nigerian equities.
While this oversimplified explanation in the preceding paragraph may have overlooked other key factors, it gives a somewhat plausible reason for the stellar NGX rally. Although some experts were caught off guard, many other seasoned veterans saw it coming.
NGX outperformed the S&P 500, DJI and FTSE 100 all put together in 2023
Comparing the performance of the NGX in 2023 to other indices in that same year may help us understand the magnitude of the rally. The All-Share Index (ASI) started the year 2023 at 46,240.02 points and closed at 67,936.56 points, representing a 47.13% increase.
In that same period, the S&P 500 had a 25.08% increase, the DJI a 13.7% surge and the FTSE 100 a meagre 3.8% return. In total these benchmarks had a 42.58% increase which is 4.55% less than the NGX ASI in that time period.
Comparing the growth of economies in the US and the UK to Nigeria does not correspond with the massive discrepancies in the performance of the benchmarks. While the numbers depict a favourable economic climate for companies to grow and post better revenue and profit numbers, the realities on ground are far from that. In 2023 alone,
Is this a suspect rally?
Rightfully so, some experts have described this rally in the NGX market as an anomaly. This is because the economy in general is not performing well but some select stocks are consistently delivering mouthwatering returns.
For example, while beer makers in the country posted a N266.6 billion loss in 2023, could not pay dividends to investors, and struggled to meet up with tax obligations, Transcorp Hilton group posted a 1022.9% return in that same year. Is this just a case of a few stocks performing and the others declining heavily? Is this a rally that can be trusted?
Generally, investors would prefer a market rally being backed up by very strong economic growth indicators like falling inflation, growing GDP and per capita income.
This is not the case here. In fact, Ugo Dre, a Nairametrics economic expert, described the Nigerian economy as being on the brink of a recession.
On the contrary, other experts have argued that the stock markets may be acting as a leading indicator and as a prelude to economic recovery following “bold” policy reforms by the Tinubu led administration. Historically, it is not uncommon for the equities market to lead or lag prevailing economic realities.
Biggest winners so far in 2024
- Dangote Cement (DANGCEM): +139%
- Geregu Power Plc (GEREGU): +126%
- Bua Foods (BUAFOODS): 68.08%
- Japaul Gold and Ventures Plc (JAUGOLD): 64.7%
- Bua Cement (BUACEMENT): +63.7%
- Transcorp Hotels Plc (TRANSCORP): +52.4%
How the Telecommunications sector is performing in 2024?
SWOOT and FUGAZ so far in 2024
SWOOT
- Seplat(SEPLAT): +45.9%
- Airtel Africa (AIRTELAFRI): +16.6%
- First Bank (FBNH):+18.9%
- Zenith Bank:-7.37%
- GTCO: -3.70%
- MTN Nigeria (MTN): +4.17%
- Dangote Cement (DANGCEM): +139%
- BUA Foods (BUAFOODS): 68.08%
- BUA Cement (BUACEMENT): +63.7%
FUGAZ
First Bank is leading the banking sector in 2024 with a 18.9% return as at February 18 2024. The banking sector maintained its high profile in the Nigerian market outperforming several other sectors. The performance of the sector so far in 2024 has also been linked to strong financials posted by Nigerian top tier banks in 2023.
If the bullrun is still on can I still join the rally?
Investing in equities and stock picking generally come with risks. If for some reason you believe the bull run isn’t over, then here are ways you can join the rally.
- Assess Company Financials: In choosing companies to back, you should consider only companies that have had great financials like growing revenue, profits and growing assets.
- Wait For Technical Levels: While some purely fundamental investors may consider technical analysis as nothing but mumbo-jumbo, it is not uncommon that stocks reverse at technical levels. Experienced analysts can use trendlines, support and resistance and Fibonaccis etc to determine where to buy a rallying stock.
- Sector Based Investing: You may do your own research on certain sectors that have performed so far and have promise of performing for the rest of the year. You may consider investing in some of these stocks rather than picking an individual stock.
- Consider Expert Opinion: Consider opinion from experts like brokers, analysts and market technicians on the stock to invest in. Remember that investing comes with risks and the investing buck stops at your desk.
