The headline of a Bloomberg.com article dated 31 December 2020 reads: “Nigeria Stocks End Year as World’s Best With 50% Gain.” It was, without a doubt, a good year for the Nigerian stock market.
In 2021, the Nigerian stock market had a rollercoaster year. Between the shortage of dollar and foreign investors, a high inflation rate, the devaluation of the Naira and waning interest from local investors, the market’s All-share index still managed to squeeze out a year-to-date gain of 6.07%, after rallying by 2.16% on the final trading day of the year. Given the adverse business and political climate of the country, Nigeria’s stock market performance in 2021 is quite fair.
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When compared with the 50.03% year-to-date gain recorded in 2020 however, the gain in 2021 doesn’t look so great. More so, the Nigerian stock market did not post any monthly double-digit return throughout the year 2021. When one considers the impact of inflation (at a 15% consensus for 2021), investors in the Nigerian stock market lost in real terms (-8.91%).
Best and Worst performers
The best performing stock on the Nigerian Exchange Limited (NGX) was Morison Industries Plc., a healthcare company, with year-to-date performance of 306%. Royal Exchange Plc. (238%), Vitafoam Nig Plc. (188%), Honeywell Flour Mill Plc. (183%) and Champion Brew. Plc. (173%) rounded up the top five list of the best-performing stocks on the exchange.
The worst-performing stocks on the NGX in 2021 were SCOA Nig. Plc. (-64.50%), CWG Plc (-55.90%), Sunu Assurances Nigeria Plc. (-55.00%), FTN Cocoa Processors Plc (-40.90%), and Aiico Insurance Plc. (-38.10%).
In 2021, Nigerian’s Stock Exchange underwent a major structural change and became a public company trading on its exchange. The structural change ensured that the NSE now operates as a Group with three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent regulation company; and NGX Real Estate Limited (NGX RELCO), the real estate company. The structural change is expected to improve the transparency and accountability of the exchange going forward. Managing Director/Chief Executive Officer of NGX Group, Oscar N. Onyema said that “as a listed entity, the Group will have access to the widest range of new investors, including the growing pool of institutional investors.” This might be the case, as the NGX posted gains of 4.52% and 2.88% in October and November 2021, following the public listing on NGX in October.
With 2022 being a pre-election year, the political environment could have the most important influence on the Nigerian stock market’s performance. There is bound to be a lot of uncertainty in the market as investors and portfolio managers assess the possible economic policies that the prospecting political candidates could bring. Historically, the stock market loses value as the election month draws near, due to investors pulling their funds out of the market in a bid to avoid the turbulence that would ensue during and after the election.
The ongoing COVID-19 pandemic, however, expected to be less severe, is also worth mentioning. There is a general market consensus that oil prices may remain strong through 2022 due to an improvement in economic activities albeit weakening from their 2021 peaks. Similarly, a Reuters survey of 35 economists and analysts forecast Brent crude would average $73.57 a barrel in 2022. This could translate to higher forex inflows for Nigeria and a more stable Naira if the country can meet its oil production capacity and OPEC quota. The inflation rate is expected to continue its consecutive decline in 2022. For eight months now, the inflation rate has maintained a downward trend after peaking at 18.17% in March 2021.