The Nigerian Stock Exchange (NSE) might enter the Guinness Book of Records over the event of last week. The NSE shook the global capital markets community on Wednesday and Thursday with astonishing share price appreciations. The market capitalization of the NSE appreciated on Wednesday by N906 billion, representing 8.45 per cent growth.
The next day, the NSE pulled a fresh surprise. Trading closed for the Easter holidays with the market capitalization of the NSE surging by N1.012 trillion, or 9.09 per cent. In the last two trading days of the week the Nigerian capital market garnered a record-breaking 17 per cent growth. The whole week saw incredible growth in the Nigerian capital market which had suffered frustrating depreciations since October 2014. Right from Monday, March 30, the market has been on a seemingly unstoppable bullish streak following the successful conduct of the presidential election on Saturday, March 28.
The results of the election were still being collated by Monday, but the mere fact that the election went relatively peaceful buoyed investors’ confidence, thus opening the week on a bullish trend. As early as Sunday afternoon, Nigerians already knew that Muhammadu Buhari, the presidential candidate of the All Progressives Congress (APC) was leading in the polls. As Nigerians and the entire world endured the cumbersome collation process, President Goodluck Jonathan broke the jinx with an action that no sitting president in the country has ever taken. He called Buhari on phone, congratulated him and conceded defeat.
The president’s gallantry in defeat doused the tension in the economy and emboldened investors to return to the capital market. The capitalization of the NSE which stood at N9.7 trillion on Thursday, March 19, suddenly surged to N12.1 trillion at the close of business on Thursday, April 2.
No one expects the capitalization of the NSE to be surging by N1 trillion every day as it did last week. But the forces behind the bearish trend that engendered the N4 trillion-depreciation in the four months leading to the presidential election might have been tamed.
The surge in the market is an implicit vote of confidence on Buhari as president-elect who is generally perceived as someone capable of taking drastic measures to reverse the country’s journey down economic precipice. Nigeria’s economic backwardness is largely traced to unfettered corruption in high places. The administration of President Jonathan was blamed for being too soft on corruption. Last week’s unprecedented boom in share prices was largely engendered by a rush by domestic investors to take position on stocks that the political uncertainty of the last four months had pushed their prices below intrinsic value.
Share prices of high flying stocks like GTBank and Zenith International Bank had drifted below the N20 mark despite their impressive returns on investment. Dramatically, the share price of First Bank sailed perilously close to the N6 mark during the dark days in the capital market even as the bank paid a dividend of N1 per share in the financial year ended December 31, 2013. The shares of GTBank which had dropped to N17 during the bearish streak in the market, suddenly surged to N31 last week.
Transactions by domestic investors which had tumbled two weeks ago to 27 per cent of the deals in the market, is now on a keen contest with that of foreign investors.
The foreign investors are still watching the market. Foreign portfolio investors who staged mass exodus from the Nigerian capital market as a result of the political uncertainty of the last six months and the sharp decline in foreign exchange inflow following the 60 per cent drop in oil price, are yet to return. They are still studying the scene. Some might wait as long as it takes to swear-in Buhari as president.
Even the naira is on an unprecedented gaining streak in the parallel segment of the foreign exchange market following Buhari’s victory at the polls. The naira has been on a dangerous depreciation streak since July 2014 when the price of oil started tumbling. The depreciation worsened when the election campaigns kicked off in earnest sometime in October.
As foreign portfolio investors flocked out of the capital market for fear of depreciating naira and tumbling oil prices, they mounted crushing demand pressure on the naira as they sought to buy scarce dollars to flee the economy.
Politicians worsened the depreciation streak of the naira when they stormed the foreign exchange market for dollars to induce clerics, traditional rulers and other opinion leaders for votes.
The naira tumbled to N228 to the dollar on the eve of the presidential election. Last week parallel market operators were crying for patronage. The demand crunch pushed the exchange rate of the naira to N203 in the parallel market at the close of business on Thursday. Demand for dollars was perilously low.
The gains in the parallel market are yet to trickle into the inter-bank market which now doubles as the official window of the forex market. Last week the official exchange rate of the naira was N199. For obvious reasons, no one in the inter-bank market expects the naira to register the type of phenomenal appreciation recorded in the parallel market.
