Despite the mixed trail of investor activity and volatility in the Nigerian stock market this year, available data shows that domestic investors’ strong appetite has continued to outperform foreign investors’ sentiments in the Nigerian stock market.
Analysts attribute local investors’ advantage to their decision to gamble on domestic bourses from the beginning of 2022.
However, overall market activity has been sluggish since the start of the second half of the year, owing to risk-off sentiment ahead of the 2023 general election and a sluggish macroeconomic climate.
According to Cowry Asset Management Company’s weekly review published over the weekend, total FPI transactions in the local bourse rose to N2.08 trillion in 10 months (Oct. 22), up 34.6 percent year on year from N1.54 trillion in the same period in 2021, indicating an increase in investor activity in portfolio investment through equities trading.
As a result, investigations of NGX trading data revealed that year-to-date, domestic investors accounted for the majority of transactions, printing N1.73 trillion with a share of 83%, while international investors’ participation remained low at 17%.” (N350 billion).
Since the pandemic-induced capital flight, foreign participation has yet to return to pre-pandemic levels; this is owing, in part, to lingering difficulties of FX liquidity amid the weak macroeconomic backdrop. Thus, the transaction performance highlights show that foreign portfolio investors’ activities have declined, from N1.22 trillion in 2018 to N435 billion in 2021.
In October, the total FPI transaction value decreased by around 48% year on year. This is due to the risk-off mood that has saturated the market since the end of June. A detailed examination reveals that foreign investors’ interests accounted for 26% of total transactions at the exchange, which increased 34.42 percent from N81.90 billion in September 2022 to N110.09 billion in October 2022.”
According to the NGX report, institutional investors’ activities exceeded those of retail investors by 42%, as the institutional component of the domestic market increased by 105% to N57.5 billion in October from N28.05 billion the previous month.
Meanwhile, a sharp comparison between the current and previous months revealed that retail transactions declined by 29.64 percent from N34.18 billion in September to N24.05 billion in October 2022 in the current and previous months (September 2022). Foreign participation in overall equity transactions has consistently declined over the years, owing to a lack of incentive to provoke feelings as we approach election season
According to the Cowry Asset research, the fact that these overseas competitors hold a minimal 25% of the market may be a reason for the apathy on stocks following the Nigerian apex bank chief’s increasing rate trajectory. However, we believe that local institutional investors would have more reason to stay in the market despite the rate hike, whereas risk-averse investors will remain apathetic towards risk assets in the wake of the rate hike.
