The Nigerian Exchange Group is on track to close 2021 with a single-digit return a far cry from the blistering 50% it achieved in 2020.
The stock exchange is currently on 5.17% return, year to date and may likely close within this range with 8 working days of trading left for the year. If stocks close at single digits as we project, then this will be the first time Nigerian stocks are closing at a return other than double digits or negative since 2005.
Stocks have either returned negative or in double digits in the last 15 years buttressing just how volatile Nigerian stocks can be. Nevertheless, Nigerian Stocks are up 396% since the turn of the millennium in the last 20 years.
The boom years of 2000 to 2007 account for more than 90% of the gains recorded. In fact, Nigerian Stocks are still down 31% from 2007 when Nigerians suffered a massive stock market crash. Stocks hit an all-time high of 57,990 points in that year.
2020 vs 2021
Nigerians’ stocks have failed to pick up from the 50% surge recorded in 2020 largely due to changes in monetary policy. Institutional investors swung towards stocks in the last quarter of 2020 after central bank policies drove down interest rate yields to single digits.
- However, policy changes towards a higher interest rate environment for government securities swung investor sentiments back to fixed income securities.
- In addition, stock prices recovered fast enough from their pre-covid levels, lowering dividend yields and driving up price to earnings ratios. When compared to risk and return, local investors typically went for fixed income securities.
- Another issue affecting 2021, was limit to retail and foreign investor participation. For example, most retail investors surveyed by Nairametrics preferred to purchase foreign stocks and cryptocurrencies over Nigerian stocks, citing frequent depreciation of the naira, lower returns as a reason.
- Foreign investor participation continued to fall due to foreign exchange related crisis affecting the repatriation of funds.
