Influenced by global and domestic challenges, domestic and foreign investors reduced their portfolios in the Nigerian equities market by 33.94 per cent in September to N81.90 billion ($187.09 million) from N123.97 billion ($289.04 million) in August 2022.
The latest “Domestic & Foreign Portfolio Participation In Stock Trading” report of the Nigerian Exchange Limited (NGX), showed that domestic and foreign investors’ portfolio suffered the worst decline in 2022.
THISDAY had reported that the stock market of the NGX in September depreciated by N429 billion or 1.6 per cent in September to N26.451 trillion from N26.88trillion it opened for trading, while the NGX ASI was down by 1.63 per cent to 49,024.16 basis points from 49,836.51 basis points it opened for trading.
The NGX numbers showed that domestic and foreign Portfolio performance in September 2022 when compared to the performance in September 2021 (N118.15billion) revealed that total transactions decreased by 30.68 per cent.
According to the report, at about 75.98 per cent, domestic investors’ transactions outperformance foreign investors that transacted a total of 24.02 per cent in the month under review.
The report stated that, “Retail investors outperformed Institutional Investors by 10per cent in September. A comparison of domestic transactions in the current and prior month (August 2022) revealed that retail transactions decreased by 14.14per cent from N39.81 billion in August to N34.18 billion in September 2022.
“Similarly, the institutional composition of the domestic market decreased by 49.87per cent from N55.95billion in August 2022 to N28.05billion in September 2022.”
Capital market analysts have attributed the decline in domestic and foreign investors’ portfolio in the stock market to hike in Monetary Policy Rate (MPR) to 15.5 per cent, a double-digit inflation rate and an attractive yield in the fixed income security.
Speaking with THISDAY, The CEO Wyoming Capital and Partners, Mr. Tajudeen Olayinka said the decline in domestic and foreign portfolio in the stock market is an extension in bearish trend the market has suffered since the beginning of sequential interest rate hikes in May 2022, currently at 15.5 per cent.
According to him, “investors exercised extreme caution in the month of September 2022, and are possibly still exercising extreme caution till date, due to prolonged repricing of securities across markets and instruments.
“A large number of investors might have decided to immunize their investments in less volatile instruments, including short-term money market instruments and currencies (notably U.S. Dollars). That also explains the reason for the persistent depreciation of Naira in the black market.”
The Chief Operating Officer, Supra Commercial Trust Limited, Mr. Charles Fakrogha said the drop in domestic and foreign portfolio exposure in the stock market for the month of September was a reflection of macroeconomy challenges.
According to him, “The hike in MPR by CBN to 15.5 per cent, double digit inflation rate, security challenges, among others discouraged investors to invest in the stock market.”
The Managing Director/Chief Business Officer, Optimus by Afrivest, Mr. Ayodeji Ebo had attributed that decline in foreign and domestic investors to persistent rise in fixed income yield due to the hike in MPR by regulatory authority.
Analyst at PAC Holdings, Mr. Wole Adeyeye said, “Some investors migrated from stock market to fixed-income market in a move to take advantage of high yields, which was triggered by the recent hike in the policy rate. Also, foreign investors avoided Nigerian stock market due to the upcoming general elections, weak local currency and insecurity in the country.”
On his part, the Vice president, Highcap Securities Limited, Mr, David Adonri said the stock market commenced declining performance when the Monetary Policy Committee (MPC) of CBN increase the interest rate.
He noted that other macro economy indicators such as inflation rate, and scarcity of foreign exchange have also diminished demand for stocks as investors moved to fixed-income markets.
According to him, “The fundamentals of foreign and domestic macro economy indicators have impacted negatively on the domestic and foreign investors’ portfolio in the stock market.”
A further analysis of the report disclosed that total transactions executed between the September and August 2022 revealed that total domestic transactions decreased significantly by 35.01 per cent from N95.76 billion in August to N62.23 billion in September 2022.
“Similarly, total foreign transactions decreased by 30.27per cent from N28.21billion (about $65.77 million) to N19.67 billion (about $44.93 million) between August 2022 and September 2022,” the report disclosed.
The report added that, “over a 15-year period, domestic transactions decreased by 58.80 per cent from N3.556 trillion in 2007 to N1.465 trillion in 2021 whilst foreign transactions also decreased by 29.38 per cent from N616billion to N435billion over the same period.
“Total domestic transactions accounted for about 77 per cent of the total transactions carried out in 2021, whilst foreign transactions accounted for about 23 per cent of the total transactions in the same period. The transaction data for 2022 shows that total domestic transactions are circa N1.648 trillion, whilst total foreign transactions are circa N321.04billion.”
FBNQuest: Corporate governance, the boardroom and veyond
In February 2021, Shareholders at aerospace company, Boeing, filed a lawsuit against the company’s Board of Directors, arguing that the Board had failed in its oversight duty by not holding Boeing accountable for safety before and after the crashes of two Boeing 737 MAX airplanes that killed 346 people in 2018 and 2019.
The lawsuit sought to hold the Directors responsible for the resulting loss of billions of dollars in value. These are dynamic times. The events of the past decade have led to a focus on various parts of corporate governance, yet, many Boards of Directors are unclear about their role in the company’s governance structure, and are asking what they should be doing in critical areas of oversight (such as strategy and risk), and social responsibility. Learning from Governance Breakdowns: As seen in the lawsuit against Boeing, shareholders wrote, in a 120-page filing, that “safety was no longer a subject of Board discussion, and there was no mechanism within Boeing by which safety concerns respecting the 737 MAX were elevated to the Board or to any Board committee.” In another governance spat, Howard Schultz (Chairman of Starbucks, and former U.S. presidential candidate), announced that despite the many thousands of managers and executives in the company and the tens of millions of dollars the company proudly spends on leadership development, Starbucks was not considering any internal candidates for its next CEO appointment. Disappointed shareholders quickly noted that the Starbucks Board had failed to deliver on two governance issues, internal leadership development and CEO succession planning.
These two test cases offer an opportunity to re-hash the crucial guiding principles for corporate governance: The Board approves corporate strategies as a basis for sustainable value; selects a CEO and oversees the CEO and senior management in running the company’s business, which includes allocating capital and evaluating risks; The Board sets the corporate tone for ethical conduct.
Management develops and implements corporate strategy, also steering the company’s business under the Board’s supervision, with the objective of ensuring continuous longterm value creation.
Management, under the oversight of the Board and its audit committee, produces financial statements that fairly present the company’s financial condition, needed to assess business soundness and risk appetite of the company.
The audit committee of the Board retains and manages the relationship with the outside auditor, and oversees the company’s risk management and compliance structures.
The nominating/corporate governance committee of the Board aims to build an engaged and diverse board, and actively conducts succession planning for the board.
The compensation committee of the Board develops executive, performance-based compensation policies regarding the CEO and senior management in order to support the company’s long-term value creation strategy.
The board and management engage with long-term shareholders on issues and concerns that are of widespread interest to them and that affect the company’s long-term value creation. Governance Keeps Evolving: In his groundbreaking 1970 article, Nobel Prize-winning economist, Milton Friedman, stated that companies had no social responsibility beyond making money for shareholders. This principle of shareholder priority guided generations of business executives, Board members, and policymakers who ensured that companies single-mindedly viewed profits as their sole objective. But Mr. Friedman eventually turned out to be incorrect. A recent “Beyond Business” panel discussion, hosted by The Wharton School of the University of Pennsylvania, focused on how Boards are redefining corporate governance to maximise a company’s social impact while balancing the needs of all stakeholders such as employees, customers, suppliers and the community in which the company does business. The panelists also added that even a quick look at the make-up of modern Boards reveals how significantly they have changed. Environmental damage, social and racial injustice, gender inequality, the COVID-19 pandemic, technological disruption, and other pressures are pushing companies to take a broader look at their purpose and mission. Boards now take on members with specific expertise in areas such as impact investing, human resources, auditing and accounting, crisis management, and AI. IN CONCLUSION Unsurprisingly, a 2022 Global Trends in Corporate Governance report (which interviewed over 50 global institutional and activist investors, regulators, advocates, advisors, pension fund managers, proxy advisors, and other corporate-governance professionals) identified the following corporate governance trends as impacting Boards and Directors in 2022 and beyond:
Improved Board-effectiveness practices become the norm as investors and other stakeholders recognise that good composition, refreshment, and evaluation practices result in improved corporate performance and decreased exposure to risk.
More assertive, demanding investors who feel empowered to demand action and disclosure on a growing number of topics, and, with failure to meet those demands, more likely than ever to vote against companies and individual Directors at annual shareholder meetings.
Urgency regarding equity and diversity initiatives both in the enterprise and the Boardroom, as evidence mounts that diverse organisations outperform others and stakeholders request quick progress.
Higher standards for corporate attention to the climate as the impact of climate change to individual businesses and society become apparent, many stakeholders now expect companies to play a role in de-carbonising the global economy.
