Markets

Investors transact N1.124 trillion equities in seven months

As a result, the Nigerian Exchange (NGX) Limited All-Share Index (ASI) rose 0.7 per cent to close at 39,170.95, just as market capitalisation rose N150.8 billion to close higher at N20.4 trillion.

Foreign and domestic participation in equities trading at the Nigerian Exchange (NGX) Limited reached N1.124 trillion in the first seven months of the year.

This is revealed in the latest report of domestic and foreign portfolio participation in equity trading as of July 31, 2021. Total investment up by 1.57 per cent to N1.124 trillion in the first seven months of 2021 as against N1.107 trillion in the comparative period of 2020.

Investigation showed that the total value of domestic transactions outperformed transactions executed by foreign investors by N649.21 billion. As of July 31, 2021, foreign investors pulled a total transaction of N237.49 billion, with outflows and inflows at N124.75 billion and N112.74 billion respectively.

Also, domestic investors transacted a total amount of N886.70 billion, showing retail investors pulling N372.88 billion, while institutional investors’ transactions stood at N513.82 billion.

The group managing director/CEO, Nigerian Exchange Group Plc, Mr Oscar Onyema, at the 2020 Market Recap and 2021 Outlook in January, noted that for the second consecutive year, equity market transactions were dominated by domestic investors who accounted for 65.28 per cent of market turnover by value while foreign portfolio investors accounted for 34.72 per cent.

On the outlook for this year, he had said, “We expect the marginal reopening of businesses, normalisation of the economy and revenue-diversification drive of the Nigerian government to elicit positive sentiments throughout the year.

“Our growth expectations should be noted with caution, as the recent second wave of COVID-19 in Nigeria and globally may slow down renewed social and economic activities.”

The foreign portfolio investments (FPIs) report included transactions from nearly all custodians and capital market operators and it is widely regarded as a credible measure of the FPI trend. The report uses two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy.

Foreign portfolio outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE. Segmental analysis delineates the proportion of foreign to local participation, institutional to retail investors as well as the momentum of activities among others.

Highlights of the performance of the market over a 14-year period revealed that domestic transactions decreased by 59.54 per cent from N3.556 trillion in 2007 to N1.439 trillion in 2020, whilst foreign transactions increased by 18.45 per cent from N616 billion to N729 billion over the same period.

Total domestic transactions accounted for about 74 per cent of the total transactions carried out in 2020, whilst foreign transactions accounted for about 26 per cent of the total transactions in the same period.

Capital market analysts noted that the stock exchange witnessed increased activity as total transactions by both foreign and domestic investors stood at N1.124 trillion in the first seven months of 2021, higher than N1.107 trillion printed in the corresponding period of 2020.

They also noted that foreign investors’ low patronage of the stock market has been attributed to the scarcity of foreign exchange (FX) as well as concerns about the coronavirus pandemic. Transactions in the local bourse used to be dominated by foreign investors until 2019 when the domestic investors took over the lead.

A stockbroker with Calyxt Securities Limited, Tunde Oyediran, said, “It is a good thing that domestic interest is building in the market; it is really positive. This is what we have been clamouring for, where the local investors will be the drivers of the market. With a level of activities demonstrated by the domestic participation will bring some sort of credibility and relative stability in the market.”

Analysts at Cordros Securities Limited stated that “We think the prospect of FPIs returning to the market is another factor to watch out for in H2, 2021. FPIs have been net sellers of equities given currency devaluation concerns amid liquidity challenges.

“We think the tacit devaluation (naira was devalued by c.3.9 per cent to N410.00 per USD by the end of March at the I and E window) engineered by the CBN alongside rising crude oil prices raises the possibility that foreign investors are likely to make a slow and phased return to the Nigerian equity market.

“Specifically, we believe the impact of high crude oil prices will support accretion to the FX Reserves, providing CBN with the ammunition to improve liquidity at the I & E window. Thus, we see scope for a material improvement in liquidity conditions, which would bring some comfort to foreign investors. However, we do not think that FPIs will return in droves as we saw in 2017 due to the fragility of macro conditions and inertia on the part of the government in implementing structural reforms to improve the domestic economy’s resilience.”

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