Amid growing concerns over the fall in foreign portfolio participation in the Nigerian equities trading, the foreign investors participation remained low in the first ten months of 2022 with a total transaction of N349.59 billion.
The October edition of the Nigerian Exchange (NGX) report on domestic and foreign portfolio participation in equities trading showed that total equities market transactions increased Year-to-Date as at October 30, 2022 by 34.59 per cent to N2.079 trillion.
Statistics showed that transactions by local investors surpassed those by foreign investors. The domestic investors pulled transactions of N1.730 trillion, representing 83.19 per cent in the first ten months of the year, while foreign investors transacted total equity worth of N349.59 billion, representing 16.81 per cent.
A further analysis of the total transactions executed between the January, 2022 and October 2022 revealed that total domestic transactions increased by 129.44 per cent from N122.94 billion in December to N282.07 billion in January 2022. Similarly, total foreign transactions increased by 16.96 per cent from N35.32 billion (about $81.20million) to N41.31 billion (about $99.30 million) between December 2021 and January 2022.
Analysis of domestic transactions showed retail transactions stood at N580.83 as against N494.87 billion in 10 months of 2021, while the institutional composition of the domestic market amounted to N1.149 trillion under the period review, higher than N720.34 billion in the comparable period of 2021.
Further breakdown showed that domestic institutional investors generated the highest transaction value, followed by domestic retail investors, while foreign portfolio investors’ contribution remained the least.
Capital market analysts noted that uncertainty in the yield environment and sustained foreign exchange (FX) illiquidity worsened foreign investors’ interest in the equities market.
Cordros Securities Limited stated that still, the print is significantly below the 2022 average (N207.90 billion), reflecting the trifecta effects of higher yields in the fixed-income market, lingering FX liquidity constraints, and heightened global uncertainties.
Looking ahead, Cordros Securities expected domestic investors to continue to dominate market performance, although rising FI yields may constrain buying activities, saying, “Also, FPIs who have exhibited a lacklustre interest in domestic equities are likely to remain on the sidelines due to sustained FX liquidity challenges, global uncertainties, election concerns, and interest rate hikes by central banks in developed countries.”
FBNQuest explained, “More details showed that domestic institutional investor participation outperformed its retail counterpart. We view this as a well-established trend in the Nigerian market.
“So far in the year, there has been a net-foreign inflow of N7 billion compared to a net-outflow of N17 billion in the corresponding period last year. In the space of 15 years, domestic participation in the Nigerian bourse decreased by 59 per cent from N3.6 trillion in 2007 to N1.5 trillion in 2021. Similarly, foreign transactions have declined by 29 per cent from N616 billion to N435 billion over the same period.”
The research firm added that “over H2, 2022, general market activity has been subdued due to risk-off sentiment ahead of the 2023 general elections and an uninspiring macroeconomic back drop. Since the capital flight triggered by the pandemic, foreign participation is yet to attain pre-pandemic levels; this is due in part to legacy issues of FX liquidity amid the fragile macroeconomic landscape.”
The managing director of Highcap Securities Limited, David Adonri, said the primary market for equities, which is tied to the fundamentals of the economy, has been comatose since 2015, while capital formation is paltry, due to weak macroeconomic fundamentals of the economy.
According to him, the primary market is the essence of the capital market. It forms equity capital, which the Nigerian economy direly needs to create wealth and generate productive employment for youths.
He argued that for issuers to approach the market to raise capital, there must be some reasonable level of recovery in the economy to sustain the current bull-run.
Specifically, he charged the federal government to restrategise and address current macroeconomic concerns, promote issues of national development, tackle prevailing stock market volatility, restore the market to sustainable rebound, and attract new issues to the nation’s bourse.
A stockbroker with Calyxt Securities Limited, Tunde Oyediran, said, “It is a good thing that domestic interest is building in the market; it is really positive. This is what we have been clamouring for, where the local investors will be the drivers of the market. With a level of activities demonstrated by the domestic participation will bring some sort of credibility and relative stability in the market.”
