Stock Market Defies Rate Hike, Rises By 31.81%

Stock Market Sees Impressive 31.81% Growth in 2024

Nigeria’s stock market has demonstrated significant resilience in 2024, growing by 31.81% year-to-date, despite monetary policy tightening by the Central Bank of Nigeria (CBN).

Key sectors, including Oil & Gas, Consumer Goods, and Industrial Stocks, have driven this growth, with some counters outperforming the broader market.

In a surprising turn, Oando Plc has recorded a remarkable 686.7% rally this year, outperforming other players in the Oil & Gas sector such as Eterna, which has gained 116.6%, and Conoil, which rose by 100.2%. This performance comes amidst an economic environment marked by high inflation and rising interest rates.

Mixed Reactions Amid Stock Market Rally

Despite the Central Bank’s recent 50 basis points (bps) increase in the Monetary Policy Rate (MPR) to 27.25%, aimed at curbing inflation, the stock market has continued to rise. The hike is the fifth this year, raising concerns among investors about its potential effects on various sectors.

In response to these developments, a Lagos-based analyst at United Capital noted, “We expect the stock market to retain its bullish stance in the short term, as investors focus on undervalued stocks. However, there could be a shift towards fixed income investments as rates have now likely peaked.”

In addition to the MPR increase, the CBN also raised the Cash Reserve Ratio (CRR) of commercial banks by 500 basis points to 50%. Despite these moves, experts believe the stock market’s positive trend may persist, especially in sectors showing strong performance.

Sector-Specific Stock Market Performances

A detailed review of the Nigeria Exchange Group’s (NGX) trading data revealed several notable performances across key sectors:

• Oil & Gas: Oando’s significant rally is followed by gains from Seplat (+77.6%), Total Energies (+75%), and Japaul Gold (+50.6%).
• Consumer Goods: BUA Foods leads with a 104.2% gain, followed by Flour Mills with 87.7%, and Honeywell, which rose by 41.6%.
• Industrial Stocks: Meyer surged by 115.9%, with other industrial players such as Cutix (+105.1%), CAP (+67.9%), Dangote Cement (+66.3%), and Berger Paints (+62.3%) also showing substantial growth.

Even amidst this optimism, some analysts have cautioned that profit-taking activities may impact the stock market in the coming months.

“We foresee a mixed performance in the stock market as some investors may begin to take profits, especially in sectors like consumer goods where profit-taking has already started,” said analysts from Futureview, a Lagos-based research firm.

Stock Market Trends Defy Monetary Policies

Interestingly, the stock market’s gains have come despite the CBN’s aggressive rate hikes. The bank has consistently raised rates this year to combat inflation, most recently pushing the MPR to 27.25%. Many had expected these moves to dampen investor enthusiasm in equities, but the opposite seems to have occurred.

Meristem analysts explained, “We believe the stock market will witness a shift as more investors are likely to move into fixed income, considering the high yields available. However, there are still good opportunities in equities for those willing to adopt a long-term strategy.”

The analysts also pointed out that stocks like Julius Berger, United Capital, and NAHCO may continue to see positive volatility in the near term due to their ongoing corporate actions and growth potential.

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Outlook for the Stock Market

Looking ahead, analysts predict a more cautious approach from investors, particularly as they await third-quarter (Q3) earnings reports for 2024. There’s also the expectation that investors may adjust their portfolios as the new quarter begins.

Vetiva Research analysts stated, “We anticipate a wait-and-see approach in the coming weeks as investors digest corporate earnings results. We may see more profit-taking in certain sectors, but the market remains ripe with opportunities.”

Similarly, Meristem Research suggested that fixed income investments could become more attractive. “With the continued hawkish stance of the Monetary Policy Committee, liquidity in the system may tighten, leading to reduced activity in equities. We expect the stock market to close this week on a slightly negative note unless a major corporate action spurs further buying activity,” the analysts noted.

Corporate Strategy and Long-Term Investment

Despite the mixed outlook, some experts see the current stock market climate as a golden opportunity for strategic, long-term investments. Fund managers are likely to shift focus toward mid-to-long-term objectives, cherry-picking equities that offer sound fundamentals and strong corporate actions.

“Investors should focus on companies with solid financials and a proven track record of growth. In such a volatile environment, the key is to be selective and to think long-term,” said a portfolio manager at United Capital.

Even with the prospect of increased investment in the fixed income space, many investors remain optimistic about the stock market’s potential. The sectors that have driven growth this year are expected to continue outperforming, providing ample opportunities for both institutional and retail investors alike.

In conclusion, Nigeria’s stock market has defied expectations in 2024, showing resilience in the face of rate hikes and inflationary pressures. The mixed outlook suggests that while the stock market’s growth may slow in the coming months, it remains an attractive option for those willing to adopt a strategic, long-term approach. Investors are advised to keep a close watch on market developments as third-quarter earnings reports are released.