Here’s why Nigerian stocks and the naira (NGN) are soaring this year

Nigerian stocks and the naira, the local currency, have soared this year, helped by elevated oil prices and the reforms made by Bola Ahmed Tinubu. 

Nigerian stocks and naira have jumped this year

Data shows that Nigeria’s NSE All Share Index has jumped by 58% this year and by 86% in the last 12 months. Some of the biggest companies in the country have soared this year.

NSE All Share Index chart | Source: TradingEconomics

Dangote Cement has soared by 112%, while MTN Nigeria, BUA Cement, and Seplat have soared by more than 100% this year. Other top gainers in the index are companies like Gunness Nigeria, First HoldCo, Airtel Africa, and Lafarge Africa.

Meanwhile, the Nigerian naira has jumped this year, with the USD/NGN pair dropping by 4.52% since January. The pair has dropped by over 10% from its highest point last year as Nigeria’s forex reserves have jumped to a 17-year high of $52 billion.

USD/NGN chart | Source: TradingView

Nigerian stocks and currency have done well as the economy has proven to be fairly resilient this year because of Dangote’s oil refinery. The most recent data showed that the economy expanded by 3.90% in the first quarter, slightly lower than the 4.07% experienced in the fourth quarter.

Analysts predict that the economy will grow further over time, with some predicting that it will hit 7%, helped by Tinubu’s reforms. After being elected, he removed the petrol subsidy and took more economic reforms. As a result, S&P Global has said that it may upgrade Nigeria to the frontier market status, which may attract more institutional investments in the country.

Nigeria Central Bank to cut interest rates

At the same time, the central bank is expected to start easing monetary conditions. It has already slashed rates two times to 26.5%, and analysts see it continuing to cut at its meeting next week. 

In a recent note, analysts at Standard Chartered predicted that the bank would deliver 150 basis points of cuts this year. This cutting cycle will be a bit slower since inflation has started climbing recently because of the impact of the war. Historically, stocks normally do well when a central bank is cutting rates.

The ongoing Nigerian stock market rally has also been fueled by soaring retail participation, with apps like Bamboo, Trove, and Chaka gaining substantial market share. 

Traders are also waiting for the upcoming Dangote Petroleum IPO, which will value it at between $40 and $50 billion. The company recently raised $2.5 billion in private placement ahead of the IPO. 

Still, there are potential risks to be aware of. One of them is that, as we have seen in South Korea, retail investors have become highly active in trading Nigerian stocks. The risk is that a small dip may see them panic sell, a move that will drag stocks lower.

Another risk is what happened after the recent SpaceX IPO. Top US stocks jumped before the IPO, and then plunged after that. SpaceX has already plunged to a record low, erasing over $1 trillion in value.