Macro Headwinds Dampen Market Sentiments

Image Credit:

May 10, 2024/CSL Research

The Nigerian stock exchange began the year strongly, showing a significant uptick in market performance during the first quarter. However, recent weeks have seen a downturn in market sentiments. Various factors have contributed to this, such as increasing inflation, disappointing corporate earnings, a deteriorating foreign exchange situation, high yields in the fixed-income market, expectations of further monetary policy rate hikes, a new round of bank recapitalization, and the potential impact on bank valuations.

Despite these challenges, the NGX-ASI remains one of the best-performing equities markets in the Sub-Saharan African region, boasting a year-to-date return of 31.40% as of 9 May 2025.

Hopes of recovery from companies that reported net losses in their 2023 financial statements were dashed by disappointing performance, driven by factors such as high inflationary pressures and further currency devaluation. While there was optimism in Q1 due to improvements in the foreign exchange situation and the Central Bank of Nigeria’s (CBN) efforts to clear FX backlogs, the recent deterioration in FX conditions has raised concerns about currency stability and the effectiveness of the CBN’s exchange rate policies.

As a result, we believe foreign investors may adopt more cautious approaches until there is greater clarity and consistency in Nigeria’s exchange rate policies. We believe that the ongoing decline in market share prices presents an opportunity for investors to employ an average down investment strategy, where investors buy additional shares of a stock, they already own at a lower price than their original purchase price.

By purchasing more shares at the lower price, the investor reduces the average cost per share of the investment. The rationale behind this strategy is that if the stock’s price eventually rebounds, the investor stands to make a larger profit because they acquired more shares at a lower cost.

However, it’s important for investors to carefully assess the reasons behind the stock’s decline and its potential for future growth before employing this strategy. Despite prevailing bearish sentiments, we maintain our positive outlook for the year. However, we anticipate that the equities market will not replicate the impressive returns seen in 2023.

Click here to read full PDF copy of report

Leave a Comment

Your email address will not be published. Required fields are marked *