October 5, 2023/CSL Research
The domestic equities market has witnessed multiple cycles in 2023. In Q1 2023, at the pre-election era, investors’ sentiments were relatively weak as uncertainties around the success of the general elections caused low participation. However, the inauguration and the announcement of policy changes by the new administration in Q2 2023 sparked positive sentiments leading to a 5.23% surge at the next trading day. Moving past the election era and into the post-election period, the local bourse has reached new heights, closing at 66,482.28 yesterday (+29.72% ytd).
Though there has been profit taking intermittently such as towards the end of Q3 2023, the negative consequences of the new administration’s policy changes have not deterred investors from taking positions in fundamentally strong stocks. As of yesterday, 04 October 2023, all sub-indices of the exchange have seen positive ytd growth except the telecommunications sub-index (-8.90% ytd) due to profit taking actions in AIRTELAFRI.
Corporate actions from listed companies such as the scheme of merger between Dangote Sugar (DANGSUGAR), Nascon (NASCON) and Dangote Rice Limited (DRL), the share buyback by Dangote Cement (DANGCEM), and dividend payouts have also aided market growth. Huge FX revaluation gains made by the banks also spurred investors’ interest in the banking sector.
Despite gains made in the market, foreign participation has remained low. Foreign participation was down to N222.78bn in August 2023 (-26.08% y/y) from N301.37bn in August 2022 as foreign exchange concerns continue to deter foreign investors participation despite the unification of the exchange rate which has led to a steep depreciation of the Naira against the US dollar.
The Naira closed at N762.04/US$ (c.-70% ytd) as at 04 October 2023 at the Importers & Exporters (I&E) Window while trading as high as N1,000/US$ at the parallel market. Foreign outflow was N127.52bn while foreign inflow was N95.26bn in the period. We believe the valuations of many stocks remain attractive despite recent gains. Within our coverage universe, we maintain Buy ratings on UBA, Access, Zenith, Guaranty Trust Bank, Lafarge Africa, DangCem, and MTNN.
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