NGX Rockets to Record Highs, Igniting Santa Claus Rally Frenzy

Investors find themselves buoyed by an air of optimism as the NGX experiences an impressive surge this week, indicative of a Santa Claus rally in full swing.

As of December 20, 2023, the NGX’s all-share index has recorded a remarkable appreciation of 1.39%, reaching an unprecedented high of 73,397.71 points. This surge has also translated into a substantial increase in equities, with the market’s capitalization surpassing the N40 trillion mark for the first time this week, witnessing a gain of N551 billion.

Understanding the Santa Claus Rally

The Santa Claus rally, a term coined to describe a seasonal upswing in stock prices during the last weeks of December extending into January, is playing out on the NGX. This phenomenon is often attributed to two main factors:

#### 1. Portfolio Adjustments

Year-end prompts portfolio adjustments by fund managers, institutional investors, and retail investors. This realignment sparks heightened buying activity, potentially propelling stock prices upwards. A case in point is Infinity Trust Mortgage Bank, which has seen a remarkable 33% increase in value this week alone, as well as Multiverse Mining and Exploration, with a gain of 16.8% over the same period.

#### 2. Market Sentiment

The NGX has experienced a bullish market sentiment throughout the year, boasting a year-to-date return of 43%, marking its most robust yearly performance since 2020. This positive sentiment has spilled over into the holiday season, with investors displaying optimism and bullishness about the prospects of 2024 on the NGX.

### Insights from Market Experts

Adebayo Adebanjo, a Senior Analyst at CardinalStone Securities, attributes the market’s positive performance to investors’ confidence in banks. According to him, as the Central Bank of Nigeria (CBN) returns to orthodox monetary policy practices, it is likely to benefit the overall banking industry. Adebanjo also suggests that Tier-1 banks are perceived as well-insulated against capital adequacy shocks, making investors more comfortable. He highlights the increase in foreign portfolio investment as another contributing factor, noting that foreign portfolio investors tend to favor banking stocks.

In Adebanjo’s words:

> “Finally, we are seeing portfolio rebalancing activities ahead of the new year. So, you’d see increased allocations to banks as portfolio managers position ahead.”

Boniface Okezie, the President of the Progressive Shareholders’ Association, concurs with the idea that portfolio rebalancing is a key driver of the observed gains. He emphasizes that investors closely monitoring the financial performance of listed companies over nine months are preparing for potentially higher dividend payouts by the end of the financial year. Okezie explains:

> “The year is coming to an end, and investors are taking positions based on the financial performance of listed companies so far. People are using the data available right now to forecast the year-end financial performance so they can track how much dividend payouts they can receive.”
> “This factor is causing a lot of movement in the market at this period.”

Okezie further underscores that, given the volatility of the Forex market, the NGX appears to be the most attractive investment option in Nigeria presently, with investors redirecting their focus towards equities.

In conclusion, the NGX’s surge, characterized by a Santa Claus rally, reflects a confluence of factors, including portfolio adjustments, positive market sentiment, and increased foreign portfolio investment. Insights from market experts underscore the pivotal role of confidence in banks, portfolio rebalancing activities, and anticipation of higher dividend payouts in driving the current market dynamics. As the year draws to a close, investors are positioning themselves strategically to leverage the favorable market conditions on the NGX.