Nigerian stocks surpass 100,000 as investors hedge against inflation

The Nigerian stock market reached a new peak on Wednesday, with the All-Share Index crossing the 100,000-point mark for the first time ever. This 10th consecutive day of gains reflects a growing trend of investors turning to equities as a hedge against rising inflation.

Driven by a 2.3% jump, the All-Share Index closed at 100,911 points, pushing its year-to-date gain to an impressive 35%, according to Nigeria Exchange data. The Top-30 Index followed suit, climbing 2.4%.

Analysts attribute the rally to increased buying by funds seeking to counteract the impact of inflation, which has been steadily climbing in Africa’s largest economy. December saw inflation hit a 27-year high of 28.92%, putting pressure on the central bank to raise interest rates.

World beater

Nigerian equities have defied the regional trend, outperforming all other markets in Europe, the Middle East, and Africa. This is fuelled by pension funds and institutional investors who anticipate record profits from lenders due to foreign-exchange revaluation gains.

Banking stocks have been the main driver of the market’s ascent, with the banking index experiencing a 12.06% surge this year and a staggering 128% increase over the past 12 months.

Another factor contributing to the stock market’s attractiveness is the negative real yield on fixed-income securities. For example, this week, the Central Bank of Nigeria sold one-year treasury bills at a yield of 8.4%, significantly lower than the December inflation rate.

This disparity incentivizes local institutional investors, particularly pension funds, to allocate more funds to equities, which offer positive returns compared to inflation.

The excitement is expected to continue as Nigerian lenders prepare to release their 2023 financial reports and dividend plans starting next month. This anticipation may further fuel the stock market’s upward trajectory.