By Nse Anthony-Uko
(Sundiata Finance) – The Nigerian Stock Exchange (NSE) has emerged as the world third best performing stock market for 2017 among major global stock exchanges.
Its 41.30 per cent year to date return (YTD) as of Friday- last closing day of the year is behind Argentina’s Buenos Aires Stock Exchange Merval Index (+77.2% year-to date), and Turkey’s Borsa Istanbul 100 (+46.5% year-to-date).
This follows two consecutive years of underperformance (2016: -6.9%; 2015: -19.9%) as Africa’s largest economy grappled with a sharp drop in oil price and severe dollar shortage while militant attacks in the oil-producing Niger Delta dealt a great blow external reserve.
The major drivers of the NSE surge this year has been the introduction of the Investors’ and Exporters’ (I and E) window by the Central Bank of Nigeria (CBN) and the subsequent liberalization of the foreign exchange market.
Also, the combination of rising oil prices, stable output from the oil-producing Niger Delta, and cheap equity valuations appeared to have ticked all the boxes for foreign inflows into the Nigerian market.
According to the latest report by the National Bureau of Statistics (NBS) data points to 200 per cent year-on-year increase in foreign portfolio investments in the third quarter of (Q3) 2017. It should be noted that foreign investors typically dictate equity price movements of NSE companies with about 50 per cent participation.
Nigeria’s economy improved in 2017 as GDP grew by 1.4 per cent year-on-year (y-o-y) in real terms from the revised 0.7 per cent recorded in the second quarter (Q2) of 2017.
Data from the website of the Central Bank of Nigeria reveals that as of 14th of December 2017, Nigeria’s external reserve increased by $990.029 million to $36.85 billion from $35.86 billion recorded on 7th of December 2017.
However, analysts are of the view that bourse may not sustain the growth momentum through 2018 despite improved economic fundamentals.
“Though Nigeria’s macroeconomic fundamentals remain strong largely on the back of stability in the oil sector, we struggle to see the NSE matching its 2017 performance next year,” said Gloria Fadipe, head of research at CSL Research Limited.
“Though expectations of relatively unattractive yields should move investments from the fixed income market to the equity market, pricier equity valuations (particularly for the more liquid stocks) will most likely undermine the attractiveness of Nigerian stocks and could potentially limit upside movements in the NSE in 2018,” said Fadipe.
Experts say the surge in the performance of the bourse in 2017 may not necessarily signal economic strength as the vast majority of the populace wallow in abject poverty while a decrepit infrastructure is continually undermining industrialization.
Labour statistics released by the National Bureau of Statistics (NBS) in December last year showed that the unemployment rate increased to 18.8 per cent in Q3 2017 from 14.2 per cent in December 2016 despite an end to the country’s economic recession.
“This is not at all a robust GDP print, it still falls far short of the growth rates the Nigerian economy should be achieving,” said Razia Khan, chief economist for Africa at Standard Chartered.
“While improved oil production has driven some of the recovery, the output numbers provided by the National Bureau of Statistics suggest that further upside from this source might be limited.”
By Nse Anthony-Uko