VCI West African Equity Index Performance – Q4’23 Market Report

VCI Index shed 0.6% in Q4’23

In 2023, the VCI index faced a downturn, experiencing a year-on-year decline of 13.2%. The main contributing factor to this loss was the performance of stocks on the Ghana Stock Exchange and the BRVM exchange. Throughout the year, the index showed a positive turn only in Q3’23, registering a 4.2% quarter-on-quarter gain. Conversely, Q1’23, Q2’23, and Q4’23 witnessed negative closures, reflecting a challenging period for the index.

Nigeria: NGXASI soars in 2023.

In 2023, the Nigerian counters displayed robust performance, with nearly all counters, except one, achieving double-digit gains. The financial services sector, in particular, attracted bullish investor sentiment, witnessing substantial surges for GTCO, ZENITHBANK, and ACCESSCORP at 76%, 61%, and 172% year-on-year, respectively. These counters continued their upward trajectory in Q4’23, with gains of 18%, 23%, and 47% q/q, respectively. Conversely, the telecommunication and agricultural sectors experienced a comparatively subdued quarter, with OKOMUOIL decreasing by 1% quarter-on-quarter and MTNN closing flat. Nonetheless, both counters recorded year-on-year capital appreciations of 58% and 23%, respectively. In the industrial goods space, DANGCEM faced a down quarter with a 6% quarter-on-quarter loss, though it managed to gain 23% year-on-year. Lastly, in the oil and gas sector, SEPLAT demonstrated a robust quarter, achieving a 26% quarter-on-quarter gain, contributing to a noteworthy year-to-date performance of 110%.

Ghana: investor apathy weighs on VCI

In 2023, the  Ghanaian constituents presented a diverse performance landscape. Among the five constituents, three closed the year with negative returns, with Standard Chartered Ghana, Ghana Oil Company, and Enterprise Group experiencing declines of 13%, 13%, and 25% year-on-year, respectively. Throughout Q4’23 none of the constituents ended in positive territory, witnessing capital depreciations of 10%, 1%, 3%, and 1% for SCB, GOIL, MTNGH, and EGL, while Unilever concluded with a flat close. Despite the subdued performance of certain constituents, it is noteworthy that UNIL and MTNGH had commendable years. UNIL witnessed a remarkable 109% year-on-year surge, propelled by positive investor sentiment following the firm’s return to profitability. Meanwhile, MTNGH continued its bullish trend from 2022 into 2023, achieving a 59% year-on-year gain.

BRVM: investors shy away from broader market, favor telecoms

In 2023, the BRVM market experienced a downturn, significantly influencing the performance of the VCI. Nearly all of the BRVM constituents in the index registered capital depreciations for the year, with ORGT, CFAO, and SOGC witnessing declines of 33%, 10%, and 42%, respectively, while SONATEL was the sole gainer with an 18% increase. This trend continued into Q4’23, where ORGT, CFAO, and SOGC observed further moderation in their share prices, decreasing by 2%, 1%, and 5%, respectively. Conversely, SONATEL bucked the trend, posting a substantial 10% surge in the same period.

What shaped the past week? 

Equities: Nigerian equities extended its bullish run as the index crossed 100,000 bps benchmark for the first time which was driven by gains in Industrial counters such as DANGCEM (+28.82% w/w) and BUACEMENT (+20.98% w/w), hence the local market surged by 8.32% w/w.  Similarly, the Oil & Gas (11.57% w/w) and the Consumer Goods   indices (+5.29% w/w) were lifted by gains in SEPLAT (+21.00% w/w) and BUAFOODS (+13.25% w/w) respectively. Meanwhile, profit-taking in ZENITHBANK (-4.44% w/w), ACCESSCORP (-4.67% w/w) and UBA (-1.61% w/w) dragged the banking index (-1.63% w/w) southwards.

Fixed Income: System liquidity for most of the week was at depressed levels, hence funding rates were at elevated levels. As such the OPR and O/N closed the week at 17.58% and 18.83% respectively. Notably, at the NTB auction this week stop rates inched higher on the 91-, 182-, and 364-days paper to 5%, 7.15%, and 11.54% respectively. Meanwhile, in the secondary market, yields in the NTB market remain unchanged as investors’ attention was focused on the NTB auction. Meanwhile yields inched higher in the bond space as investors take position ahead of next week’s bond auction.

Currency: At the NAFEM, the Naira gained w/w at ₦891.90 per dollar.

Domestic Economy:

Shortly after resumption from office and in his inaugural appearance at the Banker’s Committee Dinner, Nigeria’s Central Bank Governor, Olayemi Cardoso, hinted at the prospect of embracing an Inflation Targeting framework to amplify the efficacy of monetary policy. He made his 2024 inflation target of 21.4% public at the Nigerian Economic Summit Group 2024 Macroeconomic Outlook Launch.

This favourable outlook implies a reduction in annual inflation by about 3% y/y and is hinged on the consequent reduction in petrol prices from improved domestic refining. In our opinion, this outlook is quite optimistic given the slow start to domestic refining and the high cost of market-reflective fuel prices, which the World Bank estimates to be around ₦750 (using official exchange rate figures) and ₦1,000 (using parallel market figures). With fuel prices closing 2023 at ₦674/litre in 2023, there is at least an 11% upside to PMS prices in 2024, a position in our view which could keep inflation elevated over the near term.

Global: The global financial landscape experienced a dynamic week with notable trends across major markets. In the United States, a bullish momentum marked the week’s beginning as the Dow Jones breached 38,000 points and the S&P 500 achieved record highs, propelled by a tech-driven surge and positive sentiments towards Federal Reserve actions. Corporate earnings reports, including those from tech giants like Tesla and IBM, contributed to mixed results mid-week. Despite Tesla’s underwhelming performance, the overall optimism persisted, supported by robust economic growth of 3.3% in the closing quarter of 2023. European markets saw fluctuations, responding to economic indicators and the European Central Bank’s decision to maintain interest rates.

Major European indexes closed mostly higher on Thursday as the ECB addressed inflation concerns. In the Asia-Pacific region, markets started the week with mixed results, influenced by China’s rate decision and the anticipation of Japan’s monetary policy update. The Bank of Japan’s commitment to a loose monetary policy influenced regional markets mid-week, while geopolitical tensions and economic data played a role in shaping outcomes. The week concluded with mixed results in Asia-Pacific, reflecting market responses to Tokyo’s CPI report and Bank of Japan minutes emphasizing continued monetary easing. Throughout the week, global markets showcased resilience amid economic fluctuations, corporate performances, and geopolitical dynamics, highlighting the intricate interplay of factors shaping investor sentiment.

What will shape markets in the coming week?

Equity market: FCMB’s unaudited FY’23 numbers were released today and with the impressive top-line and bottom-line growth (83% and 207%), the stock recovered from an intra-day low of ₦10.15, to closing higher by 5.71%. We also saw investors react positively to JAPAULGOLD’s results and we expect the market to trade in line with these earnings reports next week.

Fixed Income: Looking ahead, we expect bearish sentiments to hold sway in the bond space owing to investors taking positions ahead of next week bond auction while investors remain on the sidelines in the NTB market.