Domestic investors control 53% transactions as equity valuations become attractive

Following the persistent fall in equities prices which made stock valuations attractive, domestic investors showed more appetite for stocks listed on the Nigerian Stock Exchange (NSE) as they accounted for higher market participation in the first eight months of 2019. This is reflected in the NSE domestic and foreign portfolio investment report for August which was published this month, to the effect of which domestic investors participated in higher market transactions than their foreign counterparts. The increased interest of the domestic investors manifested in more trades by local market players between January and August 2019. Available data shows that out of the N1.32 trillion worth of equities that were traded, domestic investors executed N728.51 billion worth of trade, representing 52.71 percent of the market activities whereas foreign investors traded N594.46 billion which amounted to 47.29 percent of the market activities. “Broadly, market activity has warned, with YTD average daily transaction of barely $9.9 million, compared to over $14.2 million in 2018. The increased share of local investor participation is reflective of the bearish sentiment of foreign investors to Nigerian equities, particularly as foreign portfolio investors remain concerned about the weak growth of the economy and attendant impact on the ability of Nigerian corporates to fully realise their growth potential. “Even as the increased participation of the local investors is positive for market stability and reduces the vulnerability of Nigerian equities to volatile FPIS, the weak liquidity of the local investors concerning, such as key institutional investors, such as pension funds and life insurance, who have long term money, are passive players in the Nigerian market”, said Abiola Rasak, head, corporate strategy, Central Securities Clearing Systems (CSCS). Domestic investors could either be retail domestic investors or institutional domestic investors. The NSE data shows that the domestic retail investors were responsible for N379.05 billion worth of transactions while domestic institutional investors executed N349.46 billion worth of transactions. Meanwhile between January and August 2018, the total executed transactions on the NSE equalled N1.88 trillion, suggesting that N970.31 billion or 51.69 percent of the trade was done by local traders while their foreign counterparts accounted for 48.31 percent of the trade or N906.86 billion. On a month by month basis, domestic investors notably controlled market activities in May and June this year. In May 2019, 65.06 percent of the market transactions or N143.87 billion out of the N221.13 billion market transactions in that month was attributed to domestic players. In June 67.45 percent of the N297.25 billion worth of trade in that month was executed by local capital market players. The higher margin that domestic investors had in May and June this year netted out the dominance of the foreign players in other months six months of the year. In January 2019, foreign players controlled 54.74 percent of the N122.08 billion transactions in that month. Also, 52.61 percent of the February trades worth N188.08 billion were controlled by foreign players. In March 2019, foreign players accounted for 50.94 percent of the N110.11 billion worth of trades on the Nigerian bourse. The same trend was replicated in April 2019 when foreign investors accounted for 51.66 percent of the N148.91 billion. Another month of foreign investors’ dominance was August when out of the N121.99 billion that was traded, foreign investors accounted for 52.39 percent. There was a net outflow of N37.92 billion in the first eight months of this year. Foreign inflow amounted to N278.27 billion while foreign outflow was N316.19 billion, indicating that foreign investors took out more funds out of the Nigerian economy compared with what they invested. The net outflow of funds was higher in the first eight months of this year when compared with the same period in 2018 when the net outflow of funds by foreign investors was N32.57 billion. “The political will is strong to drive a growth, across all arms and levels of government, but we need to channel some energy to critical reforms capable of giving the right quick win results, particularly in sectors and segments of the economy , where the multiplier effect can be strong and deeply felt by larger economy”, Abiola added.