ELECTIONS: INVESTORS WARY AS MARKET CAPITALIZATION CROSSES N30 TRN

While investors bet that the ruling-party candidate Bola Tinubu, who has seized an early lead in the nation's presidential election results, would deliver changes to lift Africa's largest economy out of a fiscal catastrophe, Nigerian bonds are registering some of the strongest gains in emerging markets.

The market capitalization of the Nigerian Exchange Limited (NGX) stock market crossed the N30 trillion threshold, investors shunned high risk stocks on investing.

Although investors bet that Bola Tinubu, the candidate of the ruling party and current front-runner in the nation's presidential election, would propose measures to get Africa's largest economy out of a fiscal disaster, Nigerian bonds are currently registering some of the highest gains in emerging markets. In a Bloomberg index of 71 emerging and frontier countries, five of the dollar-denominated securities of the West African country were among the top 10 performances on Monday. Monday was the biggest reduction in the nation's sovereign risk premium this year, according data from JPMorgan Chase & Co. Lagos' equities benchmark reached an eight-month high.

The stock market has increased by N2.23 trillion so far in 2023 from the N27.915 trillion it concluded trading in 2022 to the N30.140 trillion it closed yesterday.

Due to concerns over foreign exchange liquidity and the Central Bank of Nigeria's (CBN) in response to the rising inflation rate, foreign involvement in the local stock market has reduced recently.

Experts attributed this to the low yields on fixed income assets, which encouraged investors to purchase shares of companies with high dividend payment ratios.

Two important examples of how the market has historically changed during election years are the 1999 election, which ended military rule, and the 2015 election, which saw the first incumbent defeated in a general election. Prior to the election, both races saw reductions in turnout.

According to analysts, the good results declared and dividend payouts made by corporations following the earnings season were the main factors contributing to the positive domestic investor mood.

Among others, Dangote Cement Plc, BUA Cement Plc, and Nigerian Breweries Plc recently released their 2022 financial results and declared dividends to shareholders.

The management of BUA Cement proposed a dividend payment of N2.80k per 1 ordinary share of 50 kobo each, out of the earnings reported in 2022, as opposed to the N2.60 paid to shareholders in 2021. For the second year in a row, Dangote Cement proposed a dividend of N20 per common share.

Moreover, Nigerian Breweries proposed a total dividend to shareholders of N13.87 billion, or N1.43 per 50-kobo common share.

Nigerian Breweries paid a total dividend of N10.58 billion, or N1.03 kobo per share, of N3.28, or 40 kobo per share, and a final dividend of N10.58 billion.

Due to the dividend payout in 2022, investors continued to buy into these companies as well as others, leading to their sustained growth.

Dr. Afolabi Olowookere, Managing Director/Chief Economist at Analysts Data Service and Resources Limited, discussed the outlook for the stock market in 2023 and stated that while recent data suggested that market performance during pre- and post-election periods comes out negatively, it is anticipated that the stock market may close in the negative territory at the end of the year.

He stated that “the market had closed in the negative in each of the previous three election years, so looking at it, stock market returns might likely close at -16% at the end of the year, and this will be centered on factors like uncertainties surrounding the outcome of the elections, low capital inflows, and rising inflation.”

Investment One analysts noted that the direction of the stock market would largely depend on the impact of fixed income yields along with monetary policy, corporate actions, and election turnouts in a report titled “2022 review and 2023 macro-economic and financial market outlook.”

As stated in the report, Similar to our forecast in the fixed income sector and expectations of a less assertive hawkish tone from the CBN, negative real returns, high in the fixed income sector, allowing alpha-seeking investors to shift more money to reliable channel for positive real returns.

Notwithstanding the drawbacks of increasing pricing pressures, tighter monetary policy, and currency volatility, we remain cautiously optimistic about corporate profitability in 2023.

In her market commentary for CNBC Africa, Parthian Securities analyst Azeezat Awonuga said that investors were ready to seek profits in the stock market because fixed income returns have recently decreased.