August 2, 2023/FBNQuest
Since President Tinubu’s inauguration on May 29, 2023, the Nigerian Stock Exchange (NGX) has extended its lead over its main rivals on the continent. As shown by our chart, the NGX’s remarkable +25.3% year-to-date (ytd) return has significantly surpassed the +7.8% and -5.9% ytd returns of the Johannesburg Stock Exchange (Joburg) and Nairobi Stock Exchange 20 (Nairobi) index, respectively. To provide perspective on the rally’s magnitude, the NGX has gained roughly 15.4% since the President’s inauguration.
The President’s announcement of policy reforms, including the elimination of fuel subsidies, lifting of restrictions on the fx market, and the floating of the naira, struck the right chord with investors, contributing significantly to the stellar performance of the NGX.
The NGX’s rally was supported by impressive gains in various sectors, with notable increases of 65%, 35%, and 21% in the oil and gas sector index, banking sector index, and the industrial sector, respectively.
Among the notable gainers were several large-cap stocks, such as Total Energies Nigeria (+54.6%), Seplat (+41%), Dangote Cement (+30%), and MTN Nigeria (+12.7%), among others.
Banks’ performance has been influenced by the high-interest rate environment, which has positively affected their net interest margin.
Additionally, the banks significantly benefited from expectations of substantial fx revaluation gains following the downward adjustment of the naira exchange rate.
Although most banks are yet to release their Q2 ’23 results due to ongoing half-year audits, FBN Holdings (not covered), Fidelity, and FCMB have already reported significant foreign exchange revaluation gains in their unaudited Q2 ’23 results.
On the flip side, the naira depreciation has negatively impacted the Q2 ’23 results of the non-financials, with most of them reporting sizable fx losses on their outstanding foreign-denominated loans.
Looking ahead, we expect the NGX to deliver double-digit returns this year, possibly outperforming our 15.0% forecast return for 2023.
