The Nigerian stock market achieved a robust 37.65% return in 2024, marking another year of significant growth for the Nigerian Exchange (NGX). This performance capped a remarkable period of expansion, with the market capitalization climbing from N40.9 trillion to an all-time high of N62.8 trillion. However, when viewed through the lens of the depreciating Naira, the picture becomes more nuanced, revealing a sobering story of economic hardship for Nigerian investors.
The NGX All-Share Index (ASI) rose to 102,926 points at year-end, up from 40,000 points at the start of 2023, a notable achievement in Naira terms. Several key factors contributed to this growth: high-profile listings like Transcorp Power, Geregu Power, and Aradel Holdings injected vitality into the market, while strong performances in the Oil & Gas and Insurance sectors underscored investor optimism. Local participation remained dominant, accounting for 84% of trading activity, while foreign investors, accounting for 16%, showed renewed interest after years of contraction.
However, this impressive Naira-denominated return masks a much bleaker picture when viewed in U.S. dollars. At the start of 2023, the exchange rate stood at around 454 Naira to the dollar. By the close of 2024, the Naira had depreciated significantly, with the exchange rate reaching approximately 1,650 Naira to the dollar, reflecting a staggering 263% devaluation. This sharp currency decline meant that, in dollar terms, the NGX’s performance was deeply negative, with the market losing substantial value for foreign investors and those holding assets in USD.
For instance, the market's nominal growth of 37.65% in Naira terms effectively translated to a significant loss in dollar value when adjusting for the Naira’s devaluation. Investors who may have initially seen promising returns in Naira found their gains eroded or turned to losses when converted into foreign currency. This was particularly painful for foreign portfolio investors, who accounted for a larger share of the market in 2024 compared to the previous year but were still hindered by the Naira’s steep depreciation.
The stock market's resilience in the face of persistent macroeconomic challenges highlights a paradox in Nigeria’s economic landscape. On one hand, equities have been seen as a hedge against the country’s rampant inflation, which peaked at 34.6% in November 2024, nearly matching the highest levels in three decades. The high inflation environment, coupled with negative real returns in the fixed-income market, has driven many local investors toward equities, seeking higher yields. The performance of sectors like Oil & Gas, Insurance, and Consumer Goods provided strong returns in Naira, yet these gains were overshadowed by the broader economic difficulties faced by Nigerians.
The broader economic context in 2024 remained challenging. High inflation, rising unemployment, and the erosion of purchasing power weighed heavily on Nigerian households. While the stock market appeared to be a bright spot, its strong returns did little to alleviate the widespread economic hardship. The devaluation of the Naira has made imports more expensive, further driving inflation and reducing real income for most Nigerians.
This performance also underscores the paradox of Nigeria’s stock market: while the market has flourished in terms of equity value and has offered returns that outpace inflation, the country’s broader economic performance has struggled. For local investors, the stock market has provided a way to hedge against inflation, but it has not been a true reflection of the economic health of the nation.
Foreign investors, too, have faced challenges. While foreign participation in the Nigerian stock market rose to 16% in 2024, from 11% in 2023, the steep devaluation of the Naira has acted as a significant disincentive. The performance of the stock market, while strong in local currency terms, has thus not been enough to offset the devaluation for investors holding dollars.
In conclusion, while the Nigerian stock market's performance in 2024 may have been impressive on paper, it masks the harsh reality of economic decline and the devaluation of the Naira. For many Nigerians, the soaring stock market returns were insufficient to overcome the broader economic challenges, and for foreign investors, the gains made in equities were wiped out by the currency’s dramatic fall. As Nigeria’s economic difficulties persist, the stock market’s future will remain tied to both domestic policy actions and global market trends, with investors continuing to navigate the complex interplay between Naira gains and dollar losses.
