At 91.38% YtD, Domestic investors Dominate Stock Market as Foreign Investors’ Stake Dwindle

Kayode Tokede

A report by Nigerian Exchange Limited (NGX) has revealed that domestic investors in seven months dominated the stock market with 91.38 per cent 2023 Year-till-Date (Ytd) growth from 84.51 per cent 2022 YtD.

On the contrary, foreign investors’ participation in stock market dropped to 8.62 per cent 2023 YtD from 15.49 per cent 2022 YtD.

The NGX report on domestic and foreign portfolio participation in equity trading revealed that retail and domestic institutional investors that comprised of Pension Fund Administrators (PFAs), and High Network Individuals still dominating transactions on the exchange despite federal government foreign exchange reforms.

The report for the month of July 2023 revealed that both domestic and foreign investors have traded N2.15 trillion in seven months.

The breakdown revealed that domestic investors traded N1.97 trillion in seven months of 2023 from N1.49 trillion in seven months of 2022, while foreign investors traded N185.62 billion in seven months   of 2023 from N273.16 billion reported in seven month of 2022. 

It revealed that domestic retail investors’ participation in stock market increased to N640.44 billion in seven months of 2023 from N482.79 billion in seven months of 2022, while domestic institutional participation grew to N1.33 trillion in seven months of 2023 from N1.01 trillion in seven months of 2022. 

Foreign inflow   dropped to N81.47billion in seven months of 2023 from N134.19billion in seven months of 2022 and outflow also dropped to N104.15 billion in seven months of 2023 from N138.97 billion reported in seven months of 2022. 

In their recent note titled, “Will foreign portfolio investors return?”, analysts at Coronation hinted that it is unlikely that foreign portfolio investors will come back remarkably.

“Our view is that, following many disappointments in the equity market and a significant rearrangement of US and Nigerian market interest rates over the past two years, it is unlikely that foreign portfolio investors will come back in a meaningful way, at least not for the rest of this year,” they noted.

While explaining their views, they noted, “Foreign participation in the Nigerian equity markets used to run at high levels, sometimes accounting for 50per cent of turnover.

“But that was long ago. Successive years of negative equity market performance (2014, 2015 and 2016, followed by 2018 and 2019) were discouraging, to say the least. Problems with repatriation of dividends and principal, notably in 2016 and again in 2020, were also off-putting.

“Though the NGX Exchange All-Share Index recorded three straight years of positive returns in 2020, 2021 and 2022, the share of foreign investors in trading fell during this period. This is not to say that the foreign investor is absent from the equity market. Foreign participation jumped by 84 per cent from January to June this year, but relative to overall turnover it only kept pace,” the analysts added.

“YtD it has accounted for some 10percent of the market. Following many changes in the foreign exchange and interest rate environments and following many disappointments in the equity market (and despite the last three years’ performance), we doubt that the foreign portfolio investors will return in force, and we do not expect this to change between now and the end of the year,” Coronation analysts said.

Meanwhile, the report for the month of July said, “As at 31 July 2023, total transactions at the nation’s bourse increased by 72.83per cent from N406.75 billion (about $537.87 million) in June 2023 to N702.98 billion (about $911.91million) in July6 2023.

According to the report, the performance of the current month when compared to the performance in July 2022 (N101.18billion) revealed that total transactions increased by 594.78 per cent.

“In July 2023, the total value of transactions executed by domestic Investors outperformed transactions executed by Foreign Investors by circa 88 per cent,” the report explained.

A further analysis of the total transactions executed between the current and prior month revealed that total domestic transactions increased by 83.50 per cent from N361.01 billion in June to N662.44 billion in July 2023.

“However, total foreign transactions decreased marginally by 11.37 per cent from N45.74billion (about $60.49 million) to N40.54 billion (about $52.58 million) between June 2023 and July 2023, ”the report said.