As with most other years, 2021 brought fascinating developments in the financial market, especially as the path from the pandemic was far from certain.
The performance of the financial market generally fell in line with expectations as fiscal and monetary stimulus packages resulted in a ‘pull to norm’.
The equities market saw more domestic investors key into the market, as not less than N1.544 trillion worth of Nigeria’s listed stocks were exchanged by dealers on the Bourse, as against N1.581 trillion recorded in the same period in 2020.
Out of the total amount of equities traded in the review period, domestic investors exchanged equities worth N1.215 trillion, representing 78.66 per cent of the total. Domestic investors had the same in 2020 exchanged stocks worth N989.12 billion.
Defying expectations, Nigeria’s capital markets look good to end this year 2021 in positive territory with record positive return of +4.94 per cent as of December 24, despite the fears over Omicron variant taking heavy toll on stock investors’ risk appetites.
The NGX All Share Index (ASI), which opened the year in review at 40,270.72 points, had risen to 42,262.85 points as of December 24, 2021. Also, the equities market capitalisation that opened the review year at N21.063 trillion had risen to N22.060 trillion as of December 24, 2021. Bonds Market Capitalisation has risen from N17.501 trillion as of December 2020 to N19.596 trillion as of December 24, 2021.
Amid this, the stock market in 2021 has witnessed foreign investor’s exit, as value of NGX top 10 highly capitalised stocks dropping by N474.95billion in nine months
The blue chips companies on NGX have maintained stronger earnings and interim dividend pay out to investors but domestic and global economy challenges over COVID-19 virus existence created room for sentiment trading.
In the year under review, the stock market has witnessed foreign investors exit in a deal worth N173.32billion as at October 2021 as against N391.98billion in 2020. Foreign investors’ inflow as at October was N156.30billion while inflow in 2020 was at N200.59 billion
Stocks that fuelled market gain in 2021
Some of the stocks that exceeded 20 per cent return include: Honeywell Flourmills (+187.5%), Guinness (+105.3%), Champion Breweries (+183.7%), Custodian Investment (+33.3%), Ecobank Transnational (+48.3%), FBN Holdings (+60.8%), Julius Berger (+25.6%) and Livestock Feeds (+46.8%).
Others are: AXA Mansard (+112.4%), Morison (+270.6%), NAHCO (+47.8%), Oando (+24.3%), Okomu Oil (+56%), Presco (+23.7%), PZ (+26.4%), Seplat Energy (+61.6%), TotalEnergies (+70.7%), UACN (+31%), United Capital (+110.2%), University Press (+129.7%), and Vitafoam (+188.5%).
Demutualised exchange
The Exchange completed its demutualisation process in 2021. A new non-operating holding company, the Nigerian Exchange Group plc (NGX Group) was created with three operating subsidiaries – Nigerian Exchange Limited (NGX), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent securities regulator, and NGX Real Estate Limited (NGX RELCO), the real estate company.
This marked a critical and historic milestone for the Exchange as it enabled it to execute on its strategic vision to be Africa’s premier exchange hub.
The NGX group listed a total of 1,964,115,918 shares of 50 kobo each at N16.15 per share, creating room for public to have access to its shares and to further deepen liquidity in the capital market.
The big deals in 2021
MTN Nigeria Public Offer was lauded by investors, while Flour Mills and Honeywell Flour Mills business combination signposts the potentials of the FMCG’ sector.
The Union Bank deal is another worthy of mention as regulatory approvals are still expected.
BUA Group is finalising plans to list its Foods Business on the Exchange, another listing expected in 2022 that will drive liquidity in the FCMG sector of the Bourse.
How the fixed income market traversed the murky recovery
In the fixed income (FI) market, yields advanced earlier-than-anticipated in the half year (H1-21) before stabilising in the second half.
Analysts at Cordros Research were of the opinion that the bearish sentiments in the FI market were driven mainly by volatility as yields rose significantly in H1-21 due to a combination of factors, including; (1) pronouncement from PENCOM, which forced pension funds to sell assets, (2) the significant reprising of OMO bills to attract FPIs, (3) frontloading of borrowings by the government as they sought to raise funds to bridge the budget deficit and pay off maturing instruments and (4) the DMO looking to ensure that the proposed securitisation of the Ways and Means balance would be successful, as market participants indicated that yields close to long-run inflation expectations would clear the market.
Consequently, the average yields on Treasury bills and bonds increased precipitously by 6.1% and 5.5%, respectively, to 6.6% and 11.8% by the end of H1-21. Thereafter, competing factors between the supply and demand sides caused yields to trend within a tight band through the rest of H2-21.
Specifically, on the supply side, the DMO sought to extend foreign currency borrowings due to the high cost of borrowing locally, just as revenues were tethered by underperformance of oil revenue. This was due to decay of the infrastructure at some production terminals, which pressured production even as the price of Brent crude oil trended above budget estimates.
Consequently, the strong start to the year in the equities market was derailed by the upward retracement in FI yields before impressive corporate earnings lifted market performance in the Q3-21.
Analysts react
With 2022 being a pre-election year, the analysts believe the sensitivity of market to events in the political landscape will be heightened.
Historically, electioneering periods have brought a significant amount of volatility in the Nigerian financial market. The peculiarity of 2022 alongside expectations surrounding the macroeconomic environment have informed the analysts view that periodic portfolio rebalancing will be pertinent in traversing the murky recovery.
According to the FSDH Research analysts, “Investors’ participation in the equity market picked up pace in September and November 2021; however, still lower compared with the previous year. Though foreign participation is picking up (their apathy towards Nigeria’s equity market remains), it is significantly lower than domestic participation.
“The equity market continues to ride on the boost in liquidity in the system and associated decline in yields. This sufficiently placed the equity market on a gaining side in 2021.
“Going into 2022, we anticipate a further liquidity boost in 2022’Q1 due to more maturities coming in from segments of the fixed income market. Hence, the equity market will continue on its positive glide.”
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