It’s Christmas ahead of time at the Lagos Stock Exchange in Nigeria. On Tuesday, October 6, the index of the thirty largest stocks jumped by 5.7%, the second best performance in the last fifteen years. For the past month, the Nigerian stock market has been in great shape and has risen by more than 13% while the country is going through a severe recession.
Never before has the disconnection between the real economy and finance been so striking in Nigeria. As the country struggles through a recession that is synonymous with job losses and extreme poverty, the small world of finance is celebrating. Since September 22nd, the stock market has gone into turbo and daily transactions have not fallen below 4 billion naira.
The euphoria started from a flood of dividends paid in mid-September by the country’s largest banks. The Covid-19 pandemic did not affect their results and the five biggest ones paid 37 billion naira to their shareholders. At the same time, all this money has remained frozen in Lagos because of the foreign exchange restrictions imposed by the authorities who are currently fighting currency depreciation. So the money had to be invested.
Usually, financial institutions rush to buy treasury bills, but they are currently less attractive due to very high inflation. Investors and banks therefore found themselves with billions to invest and only one profitable investment left, shares, hence the stock market boom. The most prudent people should meditate on this financial adage: “In the stock market, you go up by the stairs and always go down by the elevator»!