2021 FULL YEAR: Stock market growth outpaces economy by 2.04%

Against the backdrop of marginal economic recovery in 2021, Nigeria’s stock market recorded a slowdown in growth but the performance indices remained in positive territories.

Though the sustained positive trajectory in the market was slower compared to that of 2020, but it surpassed the growth recorded so far in the nation’s economy by 2.04 percentage points.

Specifically, the Nigerian Exchange Limited (NGX) All Share Index (ASI) which represents major performance benchmark, rose by 6.07 percent to close the year at 42,716.44 points from 40, 270.72 points at the close of trading in 2020, thus surpassing the nation’s Gross Domestic Product (GDP) by 2.04 percentage points.

The nation’s GDP had recorded a sustained rebound in the first three quarters of year to close at 4.03 per cent growth Year-on-Year (YoY) in real terms at the end of third quarter 2021, largely due to base effect of the 2020 COVID-19 subdued GDP figures.

Meanwhile, another major performance indictor, NGX market capitalisation which shows value of the investments on the stock market, gained over N1.24 trillion Year-to-Date (YtD) to close the year 2021 at N22.3 trillion from N21.1 trillion at the close of trading in the year 2020.

However, Financial Vanguard’s analysis of the market showed that the Return-on-Investment (RoI) in 2020 was higher when compared to the year 2021.

Market indicators performance

Specifically, the ASI had gained 50.03 percent in 2020. The stock market continued its active momentum in January 2021 with the ASI appreciating by 5.32 percent. Thereafter, equities started to decelerate due to the rising yield on fixed income securities. At the end of first half 2021, H1 2021, ASI had declined to 37,907.28 with YtD return of -5.9 percent while equities market capitalization declined to N19.76 trillion. The ASI ended third quarter 2021, Q3 2021, at -11 percent.

Resurgence of equities in the secondary market started early in October 2021 when the ASI became positive on the back of rising crude oil price, improving fundamentals of the economy, high expectations from Q3 2021 results and heavy transactions on FBN Holdings, and Lafarge Africa.

After the expansionary monetary policy of H2’20 which drove yield on debt to low single digit, yield started to rise from February 2021, causing financial assets to retreat back to fixed income securities. As at end of Q3’21, yield on 364 day treasury bill was around 5.34 percent and 10 year bond hovered around 12.5 percent.

Events that shaped the market

Compared to 2020, the primary market was relatively active in 2021. Over N4.6 trillion new issues, mainly debt issues, hit the capital market in H1’21. BUA Cement’s listing of it’s N115 billion bond was one of them. In H2’21, corporate bonds issued by Dangote Cement and MTN among others, hit the capital market. From January to December, public debt inundated the market.

FGN Savings Bond was revived while Sukuk hit the market on several occasions. The high point in public issuance was the equities offer for sale of about 575 million ordinary shares to retail investors by MTN Communication Nigeria Plc. That was a giant step in revival of equities public offering market which had been dormant since 2008.

The year also witnessed a series of market events that shaped market direction. These comprised of a series of delistings most popular of which was 11 Plc (former Mobil), and new listings, the MTN offer, corporate actions – (UAC & UPDC) GTCo rebranding, and mergers and acquisition involving Eterna Plc, Honeywell Flour Mill Plc, Union Bank of Nigeria Plc, as well as the NGX demutualization.

Investment experts speak

Investment analysts that spoke to Financial Vanguard said the market would record a mixed performance in 2022 being a re-election year.

Commenting, analyst and Executive Vice Chairman, High Cap Securities Limited, David Adonri, stated: “Despite the relatively positive performance of the capital market in 2021, ratio of equities market capitalization to GDP was around 12.2 per cent, indicating that the capital market is not strongly integrated with the economy.”

Continuing, he said: “Full reopening of the borders and economy in 2021, together with increase in activities boosted the country’s macroeconomic conditions. The capital market benefited from them. The market was shaped by rising crude oil price, inflationary pressures, exchange rate disequilibrium, interest rate movement and improved fundamentals of listed companies.”

Commenting as well, Mr Emmanuel Onoja, Head of Research at GTI Group, said : “ The market performance was dismal this year compared to 2020 when the market rose by more than 50 per cent.

“However, it has maintained a positive run in 2021, with the NGX-ASI recording a 3.82 percent YtD return (as of 29th Dec) due to a boost from improved liquidity as a result of declining yields and improved participation. Investors’ search for a safe haven for their investments, was seen in their behaviour which was mostly characterized by the search for returns that could track rising inflation and exchange rates.

“Over the cause of the year, we witnessed the fixed income market dominate the first half of the year while the equity market led in the second half as a result of declining fixed income yields, improved investor participation, and liquidity.”

Ambrose Omordion, Chief Research Officer, Investdata Consulting, said : “Nigerian equity market in 2021 recorded a mixed performance and volatile sessions to sustain a positive outing of 2020 though on a low momentum. The trade metrics on volume of transactions so far stood at 79.31 billion shares against 2020 position of 85.30 billion units.

“Also treasury bill rate on long tenor decline to five percent and events on individual stocks on merger or acquisitions news impacted positively on stocks and sector performance.”

He explained that the market performance was driven by mixed factors ranging from increased primary market activities, acquisition, share reconstruction, positive economic data and corporate earnings that beat investors expectations in the midst of different wave of Covid-19 variants and oil prices oscillating to touch high of $85 before trading on the average of $72 and $65.

2022 Outlook

Looking forward in 2022, analysts at Cordros capital said: “Given our expectation of yield elevation in the Fixed Income (FI) market and a heated political climate that characterizes a pre-election year, we expect risk-off sentiment for equities. That being said, we see corporate actions supporting market performance in H1’22, although buying activities may be constrained by expectations regarding monetary policy direction and developments in the political landscape.

Consequently, we expect a disconnect between improvement in company fundamentals and valuation multiples.”

In his comment, Adonri said: “There are worries that the equities market may suffer from the usual penultimate election year syndrome in 2022. Downside factors that may stifle equities include reduction in capital inflow due to rising global inflation and slowdown of China’s economy. This may also reduce demand for crude oil, causing price to fall to around $62 per barrel. Volatile oil market can dampen investors’ confidence. Equities may be crowded out in 2022 by the increased resort to debt finance and flee to safety by investors. Covid19 is still a threat that can disrupt activities in 2022. However, if insecurity is curtailed in 2022 and fundamentals of the economy improves further, equities can weather the looming storm in 2022 precipitated by political risk, subsidy removal and social unrest.”

Also speaking, Omordion of Investdata, said: “Outlook for the economy and stock market in 2022 would remain mixed and dicey being pre-election year with expectations of change in economics policies of the government, especially as the government is going ahead to remove subsidy in oil sector. This and others will shape the economy and influence the stock market positively or negatively depending on investors sentiment and level of liquidity.”

However, Onoja of GTI Group, said the market would sustain the positive performance as confidence and participation in the market continues to improve.

Commenting, FSDH Research analysts say in their macroeconomic review and outlook for Nigeria: “The equity market in 2021 rode on the appreciation of the Oil & Gas Index on the back of the sustained increase in oil prices. The short-term outlook for the global oil market is challenged with the spread of the COVID-19 Omicron variant. This is expected to negatively impact the performance of the Oil & Gas segment of the NGX.

“At the firm level, many large-cap companies listed on the exchange are reporting record performance in their 2021-9M reports, which will spill into their full-year performance and eventual dividend payment. Hence, it will drive positive sentiment towards the equity market in 2022.”

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