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Naira redesign, portfolio rebalancing help NGX All-Share Index to 8.72% gain in November

Nigeria’s equity market represented by the All Share Index snapped a 5-month losing streak to close the month of November with a gain of 8.72%.

Stocks closed the month of November on a bullish run as the NGX All-Share Index and Market Capitalization appreciated by 8.72% to close the month at 47,660.04 and N25.959 trillion respectively.   

This is despite several negative headwinds coming into November, with stocks having tanked 10% in October. During the month Nigeria continued to witness rising inflation, another interest rate hike, and foreign exchange volatility. 

After getting to a record low in October, the market is now on a recovery path having suffered a massive price correction on Airtel in the month of October as investors rebalance their portfolio ahead of the year-end. 

  • The ASI rose to as high as 54.085.30 on May 27 2022 but has since in the past six months dropped by 6,425.26 basis points or 11.88%. 

Market performance: Data obtained by the Nairametrics showed that activities on the Nigerian Exchange which opened the month at N23.877 trillion in market capitalisation and 43,839.08 in the index at the beginning of trading on November 1, 2022

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  • It, however, closed on November 31, 2022, at N25.959 trillion and 47,660.04 index points, hence has earned a month-to-date gain of about N2.082 trillion or 8.72%. 
  • Further analysis showed that the NGX Industrial Index led with 13.16% terms of growth in November to 2,137.21 points from 1,888.51 points it opened for trading during the month.
  • Banking Index followed with a growth of 5.79% to 396.71 points from 375.01 points it opened for trading in November.
  • Despite the perception that pre-election years are usually characterized by negative sentiments which also results in the exit of foreign investors, market experts believe that crave for institutional investors to rebalance the structure of their portfolio towards the end of the year and CBN’s policy to redesign the Naira are some of the major factors propelling the equities market on the green trajectory. 

Mr. David Adonri, Executive Vice Chairman, Hicap Securities Limited said speaking in a chat with Nairametrics that the massive positive movement of the market last week came as a surprise and beat everybody’s imagination going by the inflationary pressure and hike in interest rate.  

CBN’s policy on the Naira: He noted that the only thing one could tie to the rising prices of equities may be the CBN’s policy to redesign the Naira. There might be some inflow of funds into the equity market as a result of the policy decision.  

  • “However, for the first two trading days this week, the equity market declined, which may be a reaction to the hike in interest rate, but today, the market bounced back. This is due to the end-of-the-month effect which means that portfolio managers usually buy more shares at the end of every month to rebalance their portfolios.  
  • These managers always take a position on some big stocks like Cement companies, telecom firms, and banks to rebalance their portfolio at the end of every month,” he said  

Mr. Ariyo Olushekun, Vice-Chairman/CEO at Capital Assets Limited also in a chat with Narametrics said the market may be witnessing the beginning of the end-of-year rally.  

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Forex challenges: Olushekun noted that the market has gone really down in the recent month and has started appreciating which is normal to stock markets in every clime.  

  • “There is no bad news relating to any particular firms. However, the economy has not really helped the market. Forex issues do not encourage foreign investors to take a position in the Nigerian capital market.” 
  • “For instance, those who brought in about $1 million at the beginning of the year when the dollar to Naira exchange was still at about N565 in the parallel to invest in the market are actually at a loss in dollar terms,” he said.
  • He also cited the inability of investors to repatriate their forex as a challenge...”And those whose dollars were through the official channels are not yet able to repatriate their dividend capital gains or even their capital.’ 

On market movers:  “Very few firms are driving the market, they are not up to 20 companies that are market drivers, when they lose value because of their weight on the market, the equities will fall and when they record gains it will also make a positive impact on the market.  

  • Hopefully, the market will do well as we approach the end of the year. As we approach the end of the year, we expect institutional investors to rebalance the structure of their portfolios. That’s will push them to invest in stocks that have strong fundamentals. And those are the ones that are driving the market,” he said. 

The chief executive officer, of Wyoming Capital and Partners, Mr. Tajudeen Olayinka noted that the price movement did not cut across all stocks but the heavy-weight ones.  

  • He noted that generally when stocks dropped so low in the index, it means investors are overreacting to an issue
  • He attributed the decline in market performance in October 2022 to economic headwinds and Airtel Africa Plc’s price correction. 
  • According to him, “economic headwinds and Airtel Africa price correction are both responsible for the loss we have seen so far in October. We are actually in a period of prolonged repricing of securities across markets and instruments, due to a multiplicity of factors. The market is now on a recovery path having suffered a massive price correction on Airtel in the month of October. 
  • The Banking stocks have not recovered significantly, it is the high-cap stocks like cement companies and MTNN that rallied because of their products. 
  • We expect recovery to begin to take place once the economy begins to look more prosperous or stable”. 

Optics: Nigerian All Share Index is up 8.72% YTD, despite being on a 5-month losing streak coming into November. Stocks are likely to close the year on a positive note.


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