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Seven of the top-10 gaining Nigerian stocks so far in 2023 are smaller capitalized companies or small-caps, with a dizzying 465% gain on average.
Each of them have a market capitalization less than N50 billion, according to data compiled by MoneyCentral.
Part of the reason is that large-cap companies are more likely to be exposed to the negative impact of naira scarcity and FX devaluation losses, as well as rising raw material costs, due to their sprawling operations.
Individual small-cap stocks are producing some impressive returns: Computer Warehouse Group (CWP) with a market cap of N18.93 billion, is the best performer on the NGX, soaring 642.5% year-to-date (see chart for top-10).
MRS Oil a N28 billion oil marketer is up 598.5%, on the back of fuel subsidy removal, while FTN Cocoa has gained 589.6% on a potential acquisition and deal with foreign partners.
The broad market, measured by the NGX All Share Index has gained 31.5% by comparison, while some of the worst performers are large caps such as BUA Cement which has returned -1.64%, Guinness -6.4%, Nestle -6.8%, NGX -8.18%, and Airtel Africa -23.55%.
However elevated returns also mean enhanced risk for investors as small caps are notoriously volatile and are the first to be sold off when risk sentiment sours.
Lower levels of regulation, and governance issues also dog the small-cap sector as they often lack sound management and business plans.
Such small-cap stocks are also often the target of market manipulators, leaving retail shareholders holding the bag with bad investments.