An economy disrupted by Covid-19 and the decline in profitability on loans granted to the federal state due to rising prices, have pushed Nigerian investors to seek refuge. The local stock market was one of them, which had a very positive impact on its annual return.

The Nigerian All Share Index, which represents all companies listed on the Lagos Stock Exchange in Nigeria, grew by 47.3% during 2020, according to data from the Capital IQ platform. This is the best performance of stock market indices in the world over the period. It is ahead of benchmarks such as the S&P 500, which includes the 500 largest companies on the US stock exchanges and has risen "only" by 15.9% over the same period.

Following purely financial logics, investments only make investments in relation to margins. From this point of view, each position acquired on the Lagos stock exchange generated a more interesting return than if it had been taken on the 500 largest American companies.

Under these conditions, the Nigerian All Share Index will also have been better than indices such as the MSCI Frontier Market Africa, which brings together the 28 largest companies listed on 13 African financial markets, and which posted a return of -2.1% over the period.

The Nigerian index was also better than the CAC 40 which includes the 40 largest companies listed in France (8.1%), the Moroccan MASI (-6.8%) and the top 10 companies listed on the WAEMU Regional Stock Exchange (-10.8%). The performance of the Nigerian stock market is finally almost twice as good, than that of the same period in 2019 (+27.4%)

This development may be surprising, especially since Africa's largest economy in terms of Gross Domestic Product experienced its second recession in five years during the year, weighed down by a sharp drop in oil prices, its main export product, and by the negative effects of the Coronavirus pandemic. There has also been a continued divestment of non-nigerians in this stock market.

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The Nigerian index better than the S&P 500 - Source: Capital IQ

But there is a reason for this performance. During the year, the lockdown imposed by the federal government of this country, came in addition to the closure of the borders with neighboring countries. In this context, people and structures with savings had no choice but to invest their money in debt securities issued by the State. Strong demand for these products has led to a historic decline in interest yields.

Nigeria's stock market: a haven for investors from soaring inflation.

In addition to this drop in interest, inflation (rising prices) reached levels that had not been seen for 3 years (just over 14%), reducing to nothing, the small margins generated on government bonds. As foreign investors left Nigeria, the shares of listed companies proved to be more accessible and profitable, which justifies the strong rise in the index.

Developments are expected to depend on the progress of the global pandemic environment, but also on the direction of oil prices, two important factors for the recovery of Nigeria's economy. The federal government has also decided to reopen its borders. This should drag down inflation, especially food inflation, and restore interest in government bonds in the short term.

It must also be said that this profitability of the Nigerian stock market is relative. The Ecofin Agency was able to note that in absolute terms the overall stock market gain generated by the Top 20 listed companies in Africa, including 2 from Nigeria, was only $ 28.8 billion, against more than $ 3900 billion for the same group of companies on the North American financial markets, and nearly $1017 billion for the Asian one. And China aside, the factor of stock market speculation has taken precedence over that of the performance of the real economy.