Report: Domestic Investors’ Dominance of Equities Market Sustainable Till Q2

• Says foreign portfolio investments plummeted 40.41% in 2021

Festus Akanbi

Amid growing concerns over the fall in foreign portfolio participation in equities trading of the Nigerian stock market, there are strong indications that the current dominance in the activities of domestic investors may persist till the second quarter of the year.

An analysis of the recently released report by the Nigerian Exchange (NGX) on domestic and foreign portfolio participation in equities trading for 2021 put domestic investors ahead as foreign portfolio investment in the equities market plummeted in the period compared to the value of transactions executed in the corresponding year of 2020.

However, analysts from Cowry Asset Management Company, in a report said local investors’ appetite for Nigeria’s equities market would be sustained by a rewarding dividend pay-out being made possible by the flurry of releases of companies’ unaudited results for 2021, and the fact that their returns are not as prone to exchange rate risk as those of their foreign counterparts.

The report stated: “In line with our expectations, the equities market was bullish in the first month of the year amid releases of the Unaudited FY 2021 financial results. This was despite the dwindling level of participation by the foreign portfolio investors. Hence, we expect the positive momentum to be sustained, as domestic investors consolidate on their positions, up until March 2022 by which time most corporates would have released their audited FY 2021 financial results and declared dividends. Going forward from April 2022, the performance of the local bourse would chiefly depend on the perceived level of risk in the political space as well as the performance of companies in Q1 2022.”

Some of the recently released results include MTN Nigeria, Ecobank Plc, Okomu Oil Plc, BUA Cement, NEM Insurance Plc, Unilever Plc, FCMB Plc and Vitafoam Plc, among several others.
The report blamed the decrease in total transactions for 2021 on the very weak appetite of foreign portfolio investors (FPIs) amid sustained fear of foreign exchange volatility eroding their returns on investment.

It said: “Foreign investors appeared to have their reservations about the Naira not being fairly priced against the greenback.
“Nevertheless, local investors, especially the institutional players, dominated the equities market as they accumulated more shares to take a position in some fundamentally sound stocks as they await the release of the full year 2021 financial results of corporates.”

Taking inspiration from the 2021 report of the capital market, Cowrie Asset analysts noted that local players’ participation in the equities market increased in the second half of the year than in the first – as fixed income securities yields, especially treasury bills yield, nosedived in H2 2021 contrary to its northward direction in H1 2021.

“Further breakdown showed that domestic institutional investors generated the highest transaction value, followed by retail investors; while foreign portfolio investors’ contribution remained the least with N24.74 billion net outflows. Hence, the ratio of total domestic transactions to total foreign transactions tilted higher to 77:23 to end the year 2021, from 66:34 in the year 2020 – total domestic transactions increased by 1.84 per cent while total foreign portfolio transactions plummeted by 40.41 per cent – amid net foreign investors’ outflows.

“As depicted by the numbers, total transactions on the NGX mellowed to N1.89 trillion in 2021 (from N2.17 trillion in 2020); of which total domestic transactions rose marginally (y-o-y) to N1.46 trillion (from N1.43 trillion). However, the FPI transactions decreased significantly to N434.50 billion in the review period (from N729.20 billion in 2020). A further breakdown of the FPI transactions YTD in 2021 showed that foreign portfolio inflows moderated to N204.88 billion (from N247.27 billion); also, foreign portfolio outflows decreased to N229.62 billion in 2021 from N481.93 billion YTD in 2020,” the report said.

According to the report, while foreign portfolio investments decreased, local investors upped their stake during the period under review.

The report said: “On the part of local investors, we saw the increased stake in the equities market – their purchase transactions were N743.52 billion, higher than N721.16 billion worth of outflows. Further breakdown showed that retail inflow transactions were N283.96 billion, lower than N294.07 billion outflows as they largely sold off more than they accumulated. Domestic institutional investors’ inflow transactions were N459.46billion, higher than the N427.15 billion worth of outflows from them. Hence, as local institutional investors threw their weight behind the equities market chiefly in H2 2021 (during which the stop rate for 364-day T-bills moderated to 4.90 per cent in December 2021 from 9.15 per cent in June 2021), the NSE All-Share Index (ASI) rocketed by 6.07 per cent to 42,716.44 index points to end the market session in 2021.”