BULLISH May: Nigerian Stocks post best return in Sub-Saharan Africa

Article Summary

  • Nigerian stock market defies traditional wisdom in May 2023, delivering impressive performance with a gain of 6.42% and outperforming other markets in Sub-Saharan Africa.
  • Market confidence was boosted by President Tinubu’s inauguration and promises of extensive reforms.
  • Investors should remain cautious as historical data shows June has been a challenging month for Nigerian stocks, emphasizing the importance of prudent investment strategies and diversification.

“Sell in May and go away” is a common saying among stockbrokers, suggesting that investors should exit the market in May to avoid potential losses.

However, Nigerian stocks had a different plan this year as they defied the traditional wisdom, delivering an impressive performance in May 2023.

The Nigerian stock market outshone its counterparts in Sub-Saharan Africa, registering a gain of 6.42% and earning the title of the best-performing market in the region for the month.

The surge in market confidence also got a boost from the remarks made at the inauguration of President Bola Tinubu, who vowed to implement extensive reforms to revitalize the Nigerian economy.

Investors welcomed the promising sentiment and rallied behind the market, propelling it to its highest monthly return since December 2023, when it soared by 9.76%. Nigeria’s stock market recorded its best monthly performance in May 2023, gaining 6.42% and outperforming other major markets in Sub-Saharan Africa.

What the data saying

According to data from Nairametrics, Nigeria’s All Share Index (ASI) rose from 52,299.24 points at the end of April to 55,769.28 points at the end of May, adding N1.98 trillion to its market capitalization, which crossed the N30 trillion mark for the first time since March 2023.

The ASI also posted its best monthly gain since December 2023, when it rose by 9.76%.

Highlights – The market snapped a two-month losing streak, as it had declined by 1.9% and 0.8% in March and April respectively.

  • The market recorded positive returns in all but one trading session in May, with the highest daily gain of 5.23% on May 30, a day after President Tinubu’s inauguration speech.
  • The market turnover increased by 10%, as investors traded a total of 12.8 billion shares worth N129.9 billion in 217,718 deals in May, compared to 11.6 billion shares worth N118 billion in 189,007 deals in April.
  • The banking sector led the market performance, as the NGX Banking Index gained 8.2%, followed by the NGX Industrial Index, which gained 6%. Zenith Bank, FCMB, Transcorp Hotel, and Nigerian Breweries were among the top gainers, with 10% appreciation each.
  • The market’s price-to-earnings (PE) ratio stood at 10.2x as of May 31, compared to 10.4x for South Africa, 3.5x for Ghana, and 9.6x for Egypt.
  • The year-to-date (YTD) return of the ASI improved to 8.82%, which is lower than the 21.5% YTD return recorded in May 2020.

Best in Sub-Saharan Africa

In comparison with other markets in Sub-Saharan Africa, Nigeria outperformed South Africa, Ghana, and Egypt in year to date May 2023.

  • South Africa’s FTSE/JSE All Share Index gained 3.2%, Ghana’s GSE Composite Index gained 2.76% and Kenya’s lost 18.66% in the same period.
  • Nigeria also did better than the frontier market index which posted a loss of 0.59%, emerging market index gain of 1.46%, and developing markets gain of 6.79%.

But, But…

Investors should be cautious of a possible bearish trend in June, as historical data shows that stocks have posted losses every month of June in the last four consecutive years.

Moreover, stocks have posted losses six out of ten times every June in the last decade.

  • While the performance of Nigerian stocks in May was undoubtedly impressive, investors must remain vigilant as they brace themselves for the potential bearish trend in June.
  • The historical data serves as a reminder that June has proven to be a challenging month for the Nigerian stock market in recent years.
  • This cautionary note highlights the importance of prudent investment strategies and diversification to mitigate potential risks.

While the recent positive market sentiment and the inauguration of President Tinubu have provided a boost to investor confidence, it is essential to maintain a long-term perspective and not be swayed solely by short-term gains.