In the first seven months of the year, foreign and domestic participation in stocks trading at the Nigerian Exchange (NGX) Limited reached N1.124 trillion.
According to the most recent report on domestic and international portfolio involvement in equities trading as of July 31, 2021, this is the case. In the first seven months of 2021, total investment increased by 1.57 per cent to N1.124 trillion, compared to N1.107 trillion in the same time in 2020.
Domestic investors also transacted a total of N886.70 billion, with retail investors drawing in N372.88 billion and institutional investors pulling in N513.82 billion.
Mr Oscar Onyema, the group managing director/CEO of Nigerian Exchange Group Plc, stated in January at the 2020 Market Recap and 2021 Outlook that domestic investors dominated equity market transactions for the second year in a row, accounting for 65.28 per cent of market turnover by value, while foreign portfolio investors accounted for 34.72 per cent.
“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,” he added of the forecast for this 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 report on foreign portfolio investments (FPIs) comprised transactions from nearly all custodians and capital market operators, and it is largely recognized as a reliable indicator of FPI trends. In order to evaluate foreign investors’ mood and participation in the stock market as a barometer for the economy, the report uses two important indicators: inflow and outflow.
Foreign portfolio outflow refers to sales or liquidations of equity portfolio investments on the stock exchange, whilst inflow refers to purchases made on the NSE. The percentage of foreign to local participation, institutional to retail investors, and the momentum of activities, among other things, are all determined by segmental analysis.
Domestic transactions declined by 59.54 per cent from N3.556 trillion in 2007 to N1.439 trillion in 2020, while international transactions climbed by 18.45 per cent from N616 billion to N729 billion over the same period, according to highlights of the market’s performance over a 14-year period.
Domestic transactions accounted for over 74% of total transactions in 2020, while foreign transactions accounted for roughly 26% of total transactions during the same time period.
Foreign investors’ minimal participation in the stock market has been related to a lack of foreign exchange (FX) as well as fears about the coronavirus outbreak, according to the researchers. Foreign investors used to dominate transactions on the local market until 2019 when domestic investors took over.
“It is a wonderful thing that domestic interest is rising in the market; it is really positive,” said Tunde Oyediran, a stockbroker with Calyxt Securities Limited, who revealed that it is what they’ve been hoping for, where local investors will be the market’s driving force. With a level of activity proven by domestic engagement, some type of legitimacy and relativity will be gained.
We think the likelihood of FPIs returning to the market is another element to watch out for in H2, 2021,” according to Cordros Securities Limited analysts. Due to currency depreciation worries and liquidity issues, FPIs have been net sellers of shares.
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”.