Amid the mixed trail of investors’ activities and the volatility witnessed in the local equities market this year, available data has shown that the strong appetite of domestic investors has continued to out-perform the sentiments of foreign investors in the Nigerian stock market.
Stock market analysts attributed the upper hand of local investors to their decision to take a bet on domestic bourse since the beginning of 2022.However, the general market activity has been in a lull from the beginning of the second half of the year due to risk-off sentiment ahead of the 2023 general election and a lacklustre macroeconomic environment.
According to transaction numbers quoted by the investment and financial firm, Cowry Asset Management Company, in its weekly review issued at the weekend, the total FPI transactions in the local bourse rose to N2.08 trillion in 10 months (Oct. 22) and up 34.6 per cent year on year from N1.54 trillion in the same period of 2021, signaling an upbeat in investor activities in portfolio investment through equities trading.
“Thus, analyses of the trading data polled from the NGX showed that year-to-date, domestic investors accounted for the bulk of transactions which printed N1.73 trillion with a share of 83 per cent, while foreign investors’ participation remained low at 17 per cent (N350 billion).
“Since the capital flight triggered by the pandemic, foreign participation is yet to attain pre-pandemic levels; this is due in part to legacy issues of FX liquidity amid the fragile macroeconomic landscape. Thus, the performance highlights of transaction trend point that foreign portfolio investors’ activities have continued to dwindle from the N1.22 trillion reported in 2018 to N435 billion in 2021.
In October, the total FPI transaction value represents a year-on-year decline of around 48 per cent. This can be attributed to the risk-off sentiment which pervaded the bourse since the close of June. A closer look reveals that foreign investors’ interests accounted for 26 per cent while domestic investors were responsible for 74 per cent of total transactions at the exchange which rose 34.42 per cent from N81.90 billion in September 2022 to N110.09 billion in October 2022.”
The report from the NGX highlighted that the activities of institutional investors were higher than that of retail investors by a difference of 42 per cent as the institutional composition of the domestic market surged 105 per cent to N57.5 billion in October from N28.05 billion in the prior month.
Meanwhile, a sharp comparison between the current and previous months showed that domestic transactions in the current and prior months (September 2022) revealed that retail transactions decreased by 29.64 per cent from N34.18 billion in September to N24.05 billion in October 2022. Foreign participation in total equity transactions has steadily been on a decline over the years on the back of the lack of incentive to trigger sentiments as we also approach the election year.According to the Cowry Asset report, the fact that these foreign counterparts control a minimal 25 per cent of the market may be a reason for the apathy on equities following the upward rate trajectory by the Nigerian apex bank chief. But we reckon that local institutional investors may have more incentive to remain in the market despite the rate hike while the risk-averse investors will continue to exhibit apathy towards risk assets in the face of the rate hike.
