Why The Nigerian Stock Market Is Rallying
Nairametrics|The Nigerian Stock Exchange (NSE) yesterday rallied by a massive 2.21%. The positive move has reduced the negative year to date return of the stock market to -4.20%. The all share index also closed positively on Tuesday, gaining a modest 0.28%. If the present positive trend continues, the market could close the year to date returns for April positively. Analysts have posited several reasons for the current market sentiments.
New FX Window?
First is the new FX window created for foreign investors by the Central Bank of Nigeria (CBN). The exchange rate will be largely market driven with the apex bank intervening when it deems fit. The move may have encouraged foreign investors who have been sitting on the sidelines despite an over 30% devaluation in the Naira, which have made Nigerian assets cheaper. Influx of foreign portfolio inflows if often seen as a driver for a bullish market, however they have stayed away due to difficulties in accessing foreign exchange.
Air of optimism
The optimistic macro economic sentiment expressed by analysts may also be a reason for the uptick in the market. Both world economics, and the Nigeria Bureau of Statistics (NBS) have stated that the economy is on the verge of recovering from recession. The economy last year, fell into recession for the first time in over 30 years, due a drop in crude oil prices.
Positive results released this week have also played a critical role in the rally. Tier two bank, Stanbic IBTC yesterday released its quarterly result for the three months ended March 2017. Profit after tax increased by 106% to N16 billion. Q1 2017 for Lafarge Wapco and Ashaka Cement also showed massive increases in profit.
From a loss position of N1.87 billion in 2016, Lafarge made a profit of N5.1 billion in the three months ended March 2017.
Income before tax for Ashaka cement also moved massively from N292 million in 2016 to N2.3 billion in 2017.
Banks and industrials are major drivers of the Nigerian market. So investors may have also taken this as a sign that the economy may have finally turned the corner.
Record of performance in the Nigerian Stock Exchange also suggest the month of April is one of the better performing months in the year. The Nigerian All Share Index has closed positively every April for the last 8 years consecutively. The only other month that come close in December. We believe this is perhaps one of the reason why we are seeing a late rally. Last year, the month of May followed April with a positive close.
While the rally is good news, there is no certainty that it will be sustained. The new FX window has yet to be implemented. Crude oil prices and production volumes are still susceptible to a decline. Either due to global macro economic issues or militant attacks.