The stock market is one of the most popular measures to determine the strength and trajectory of an economy. When the stock market is performing poorly, the economy as a whole usually does not perform well either. However, the stock market is not the economy, and this is what we are witnessing in Nigeria.
The Nigerian economy is currently facing some serious hurdles with inflation being at all-time high levels. Interestingly enough, key Nigerian stocks have been generating positive returns despite the economy experiencing hurdles.
The Nigerian Stock Exchange (NSE) defied economic headwinds in the first half of 2023, with the All-Share Index (ASI) rising by 5.53% to close at 52,839.88 points on June 30. This was despite the challenging economic environment, which was characterized by high inflation, a depreciating currency, and rising interest rates. But as of the closing of the stock market on July 31, 2023, the NGX-ASI experienced a decline of 1.10%.
According to Nairametrics, the YTD gain measures the overall performance of the stock market from the beginning of the year until the specified date, indicating that, despite fluctuations, the market had performed well and had seen considerable growth since the start of the year.
In general, most market indices demonstrated growth, indicating a bullish trend in the Nigerian stock market. Several sectors performed exceptionally well, contributing to the overall positive performance of the stock exchange, according to Nairametrics.
There are a number of factors that may have contributed to the NSE's resilience in the first half of 2023. One factor is the strong performance of the oil and gas sector, which accounts for a significant portion of the index. The oil price has been on an upward trend in recent months, which has boosted the earnings of oil and gas companies.
Another factor is the improving investor sentiment. Investors are becoming more confident in the Nigerian economy, and they are willing to put their money into the stock market. This is supported by the fact that foreign investors have been net buyers of Nigerian stocks in recent months. The Nigerian government has been taking steps to improve the investment climate in the country. These steps include reducing taxes and improving infrastructure. This is making it easier for businesses to operate in Nigeria, which is also benefiting the stock market.
Finally, the NSE has also benefited from the low interest rate environment. The Central Bank of Nigeria (CBN) has kept interest rates low in order to stimulate economic growth. This has made it cheaper for investors to borrow money to invest in the stock market.
It remains to be seen whether the NSE can maintain its resilience in the second half of 2023. However, the factors mentioned above suggest that the market is well-positioned to weather the economic headwinds.