Foreign, Domestic Investors’ Stake in Stock Market Down 33.94% on Global Economic Headwinds

Kayode Tokede

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.”