Domestic Investors Maintain Dominance of Stock Market Transactions

•Account for 80% of N232bn traded in January

By Goddy Egene

Domestic investors continued to dominate trading at the local bourse, accounting for 80 per cent of transactions recorded in January, THISDAY has learnt.

According to trading statistics for the month obtained from the Nigerian Stock Exchange (NSE), a total of N232.46 billion was invested in shares, down marginally from N269.24 billion on December 31, 2020.

Although the total value of transactions declined, the domestic investors maintained the lead, accounting for N184.94 billion or 80 per cent, while foreign investors traded N47.52 billion or 20 per cent.

The domestic investors had accounted for about 74 per cent of the total transactions carried out in 2020 while foreign investors were responsible for about 26 per cent.

However, a breakdown of domestic transactions in January showed that institutional investors outperformed retail investors by 28 per cent.

Institutional investors traded N117.50 billion compared with N67.44 billion traded by retail investors.

But further analysis of the domestic transactions showed that the N67.44 billion recorded in 2021 indicated an increase of 10.16 per cent from the N61.22 billion executed in December 2020.

Foreign investors were dominating trading in the nation’s equities market until 2019 when domestic investors took over, accounting for N985 billion compared with N943 billion by foreign investors.

The gap widened in 2020 when domestic investors accounted for N1.439 trillion as against N729 billion traded by foreign investors.

Although domestic investments appear to be increasing, it is still considered inadequate as domestic investors in the market are less than five million.

In view of the population of Nigeria, there have been calls to deepen domestic participation in the market.
While the NSE has stepped up efforts to attract more retail investors to the market, the impact has been low, forcing some stakeholders to call for a review of the strategy.

The low patronage of the market by foreign investors had been attributed to their inability to access foreign exchange (FX) for the repatriation of their funds after trading their shares or receiving their dividends.
Meanwhile, analysts at Cordros Securities said the tacit devaluation of the naira, which has been devalued by 7.0 per cent in the I&E window thus far in 2021, alongside rising crude oil prices raise the possibility that foreign portfolio investors (FPIs) may make a gradual return to the local bourse.

According to them, there should be a material improvement in liquidity conditions, bringing some comfort to foreign investors.

They, however, stated that they did not think that FPIs would return as in 2017 due to concerns around the exchange rate framework and structural reforms to improve the domestic economy’s resilience.

A frontline investment banker and founding partner of CardinalStone Partners Limited, Mr. Mohammed Garuba, had told THISDAY that the long FX scarcity, which has never been seen before, was scaring many investors away from the Nigerian market.

“In 2016, we had a problem like this when FX inflow dropped materially. But we started seeing some liquidity in the Investors & Exporters (I & E). In the past, we have always seen a financial crisis but never exceeded six months. For the first time, we started seeing this crisis in March last year, when CBN stop selling FX and has not sold FX since then.

“So when the financial crisis started happening, a lot of foreigners started selling their shares as it happened all over the world. Some of those people who sold their shares last year when we were at home due to the lockdown, till today have not been able to take their money out of Nigeria,” Garuba had said.

The Chief Executive Officer of DLM Capital Group, Mr. Sonnie Ayere, also said foreign portfolio investment had been declining amid FX control and other macroeconomic risks, which he explained had made Nigeria less attractive to foreign investors.

“In addition, the wide gap between exchange rates at the parallel market and the I&E window also suggests mispricing of the currency, which makes foreign investors reluctant to invest in Nigeria financial assets,” he said.

He added that the naira had experienced volatility due to weak fx earnings, persistent concerns about the impact of the Coronavirus and heightened fears about the potential drop of hard currency inflows. The pressure on naira, he stated, exacerbated after crude oil prices fell below $30 per barrel at the international oil market.