Cpital market analysts have predicted mixed market performance for equities trading in 2023, being an election year as investors, most especially, foreign investors, await the incoming president’s economic reforms after the elections.
2022 Domestic Bourse Review
Looking at 2022, the performance of the Nigerian equities market was broadly positive at the start of the year owing to a combination of positive 2021 full year corporate earnings and dividend declarations.
In addition, the accommodative interest rate environment provided room for buying interest amid low yields on fixed-income instruments. Furthermore, some notable events in the year supported the market rally in 2022. Starting the year, BUA Foods listed a total of 18.00 billion shares on NGX. Dangote Cement Plc successfully executed the second tranche of its Share buy-back program, among others.
The All-Share Index (ASI), went up by 19.98 per cent to close on December 30, 2022 at 51,251.06 points from 42,716.44 points at which it opened trading for the year. Similarly, market capitalisation for the period gained by N5.618 trillion to N27.198 trillion on December 28, 2022 from N22.297 trillion.
Triggers Of Market Performance In 2023
Analysts at Cordros Securities Limited said: “we expect investors positioning for 2022 full year results ahead of upbeat corporate earnings and re-investment of dividends to drive bullish sentiments in Q1, 2023.
“Nevertheless, in the latter part of the year, we believe that market sentiments will be shaped by a combination of the outcome of the 2023 elections, market-friendly policy or reforms, the direction of monetary policy, and impact on fixed income yields, sector-specific events and the weak macroeconomic environment.”
Cordros Securities added that “our baseline expectation is that the market will deliver a positive return of 3.5 per cent in 2023.”
Stakeholders’ Views
Chairman of the Association of Securities Dealing Houses of Nigeria (ASHON), Mr Sam Onukwe, said: “the outlook for the global economy headed into 2023 has soured, as the ongoing war in Ukraine continues to strain trade, particularly in Europe, and as markets await a fuller reopening of the Chinese economy following months of disruptive COVID-19 lockdowns.
“The world is still reeling from shocks in geopolitics, energy and economics. Soaring food and energy costs have fueled the highest rates of inflation since the 1980s in many countries and the biggest macroeconomic challenge in the modern era of central banking.”
According to him, with excessive post-COVID consumer demand, bloated retail inventories and the battle against inflation continuing to weigh on growth in 2023, it is believed that global GDP growth will top out at just 2.2 per cent, narrowly defying recession, but lower than the three per cent growth expected for 2022. Inflation to remain above pre pandemic trends for several years, if not longer and it is expected that the US economy to go into a recession as we enter 2023 as real GDP growth to recover in 2024
“According to the World Bank, the Nigerian economy is projected to slow in 2023, down to 3.2 percent (from 3.3 percent) and persist at this level the following year. Growth will be supported mainly by the rebound in private consumption prompted mostly by accommodative monetary policy as inflationary pressures subside. Private consumption expenditure is forecast to decrease this year and grow next year. This performance will likely continue in 2024. On the production side, growth in 2023 will be supported by industry (with growth of 5.1 percent) with the mega-refinery project.”
He noted that, while the recovery from the pandemic shock is incomplete, higher inflation, which reduces consumers’ disposable income, lingering effects of aggressive monetary policy, the deteriorated labor market, and weak confidence will weigh on growth in private consumption, saying, it is still expected that the shocks from the Russia Ukraine war will continue to be felt in Nigeria, as the cost of wheat and other commodities usually exported by these countries will definitely affect the Nigerian economy.
“Global inflation, increase in interest rates, global recession, reduction in purchasing power are all features of 2022 and beyond which we believe would persistently have impacts and shocks on the Nigerian economy,” he said.
On insights for the Nigerian Exchange in 2023, Onukwe explained that, “the continued increase in interest rates will further affect the stock market as investors will turn to higher yields investible instruments, while the Oil and Gas industry will continue to thrive with the expected increase in international oil price.
He added that the Banking Sector in Nigeria will continue to flourish, saying that the growth of electronic transactions would further improve bottom lines.
According to him, the FMCG industry may struggle due to persistent inflation, and the reduction in purchasing power of consumers. Foreign Portfolio Managers and Investors will maintain a ‘wait and see’ until after the 2023 elections.
The managing director, of Highcap Securities Limited, Mr. David Adonri said, “with the expectation of relatively high yields in the fixed income market, especially in the first half of 2023, most investors are expected to patronise the bonds market more.
“Consequently, we may see less participation of investors in the stock market in the first half of 2023 due to the upcoming election, weak local currency, the expectation of relatively high yields in the bonds market, and insecurity in the country.
“Although, we may see a bullish run in the first month of 2023 as we expect investors to position for dividend payment.”
He added that the ability of the next president to tackle the insecurity in the country and boost foreign exchange earnings would determine the direction of the stock market in the second half of 2023.
On his part, the chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion, projected financial market and economic reset, higher inflation, reforms, slow economic growth, post-election rally for weeks if the election is successful, and improved external reserve if crude oil production output is sustained in the new year.
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