A Look at the Stock Market

Introduction

Nigeria's stock market has gained global recognition for being the best-performing market, surpassing Argentina after a positive close on Wednesday. The Nigerian Exchange Limited (NGX) All Share Index (ASI) experienced a significant rise of 2.38%, surpassing the 90,000 mark, with a year-to-date increase of 20.45% and a week-to-date rally of 8.45%. The impressive performance of the Nigerian stock market has been a trend in the last five months and has achieved an impressive growth of 89% in the last five years in market capitalization. 

Wednesday's positive close saw increased investor activity, particularly in shares of companies such as Guinness Nigeria, Wema Bank, Honeywell Flourmills, AIICO, and Sunu Assurances, all recording maximum daily increases of 10%. This surge and the remarkable performance of other stocks propelled the benchmark performance indicator to reach new highs. 

As BUA Foods, BUA Cement, Cadbury, Chams, Dangote Cement, Eterna, Geregu, Flour Mills, International Breweries, Japaul Gold, May & Baker, NEM Insurance, Northern Nigeria Flour Mills, PZ, Transcorp, Tripple G, and UPDC contributed to pushing the market higher, it becomes imperative to address the disparities between the stock market's achievements and the economic well-being of the average Nigerian. Also, there are growing concerns about the high concentration power as the top 10 companies on the Nigeria stock exchange hold 70% of the entire market capitalization. Despite the recent impressive performances of the stock market this still creates a heightened market risk

The optimism expressed by Vetiva Research analysts highlights the ongoing bullish trend in the market, with expectations of some price corrections. However, the disconnect between the stock market's success and the economic challenges on the ground raises questions about the inclusivity of economic growth.

Despite the impressive performance of the stock market, economic challenges persist for the average Nigerian. High inflation, a depreciating Naira, and persistent unemployment rates paint a different picture of the broader economic landscape. While the bulls continue to dominate the stock market, concerns linger about the equitable distribution of economic benefits.

The Nigerian stock exchange has been growing in absolute Naira, but on the real value, it is not. This is caused by the depreciation of the naira in the exchange rate market which erodes the value of the naira over the years. This has made many people poorer and depressed the overall value of the stock market. The naira to dollar in the parallel market within the same week of the impressive stock market hovers around $1/N1350 which represents over a 90% increase from what it was 6 months ago. Inflation for December reaches an all-time high of 28.92% persistently sweeping off the value of naira and purchasing power of Nigerians. 

The economic hardship and disaster of macroeconomic indicators amputate the effect of the performance of the stock market on Nigerians and discourage foreign investors. This gives insights into why foreign investors are not coming for about 45% gains in return on equity. If you made 45% on equity, but lost 50% on currency, with 30% on inflation, essentially investors remain poorer.

However, one thing cannot be disputed, and it's the ability to make more Naira in Nigeria that has never diminished for years because there are opportunities. The issue is making the Naira a stable currency and making Nigeria a good economic environment. That way, importing funds into Nigeria, will be a win for local and foreign investors as shares of companies accelerate; this will boost investors' confidence, and attract more Foreign direct investment, foreign portfolio investments, and general economic growth.

Efforts should be directed towards creating a more inclusive economic landscape, where the benefits of the stock market's success translate into improved living standards for all segments of society. The positive momentum in the stock market should serve as a catalyst for the implementation of comprehensive economic reforms that address inflation, unemployment, and currency stability, ensuring a more balanced and sustainable growth trajectory for Nigeria.