As Nigerian stocks hits 15-year high, experts urge investors not to buy the top
On Tuesday, the All Share Index (ASI) of the Nigerian Stock Exchange hit a 15-year high. The ASI rose by 0.51% to close yesterday’s trading at 66,490.34 basis points, rising above the high of 66,371.20 bps recorded on March 5, 2008. While other investors may be looking to get in on this run, experts have warned against getting their fingers burnt.
Samuel Oyekanmi, a research analyst, told investors to be a bit skeptical of the market movements. “When there is a bubble and the market is so bullish, you need to be skeptical before you go in. It is best you have been in before it goes up. Right now, it is already at a record high, you don’t want to go in and it bursts,” he said.
Is the rally disconnected from Nigeria’s economy?
Most of the experts believe the market would remain bullish as the ASI on Tuesday was driven by banking and consumer goods. Notwithstanding, two other experts believe that the market is disconnected from the wider economy. CEO of Asher Investment, Muktar Mohammed said that while the stock exchange is doing well, it would at some point bow to the real state of the nation’s economy. Mohammed said that markets depend on the success of the economy to thrive. “As a market, you need the economy to be very stable, especially the macro economic space,” he said.
Mayowa Badejo, a partner at 213 Capital Ltd, agreed with Mohammed as he warned investors not to be quick to begin to invest in the stock market. At core of his submission is the fact that the stock market rally doesn’t not reflect some of the economic realities Nigeria is facing. As it stands today, Nigeria’s inflation is at 24%.
With the gap between the naira and dollar rate widening in the black market. Also, the Gross Domestic Product slowed to 2.51% in Q2 2023 from 3.54% in the same quarter last year over challenging economic conditions. “There are a lot of foreign investors trapped in the Nigeria market due to forex scarcity. They may want to get out. One has to be careful and investors should not rush into it. In my own view, this rally is not sustainable. The fundamentals like our GDP growth is very low, which is not enough. If you consider our inflation, exchange rate devaluation, fx reserve and other fundamentals, it does not support the rally we are seeing,” Badejo said.
A new shift to the money market
While market experts admit that the swear-in ceremony of ministers and performance of domestic investors contributed to the market rally; Badejo senses a shift in investment. The analyst said that there is a possibility of investors gravitating to the money market. Since there are lower risks in the money market than in the equity market.