Total transactions at the nation’s bourse has been on the decline since January 2020, except for the sharp increase in March 2020. In comparison to the performance in January 2020, the nation’s bourse as at May 2020 had decreased by 49.40 per cent—a reflection of 22.60 percent decrease in foreign inflow transactions, 63.85 per cent decrease in foreign transaction outflows, 48.34 per cent decrease in domestic retail transactions, and 50.02 per cent decrease in domestic institutional transactions.
A major reason for this overall decline in total transactions year-to-date (YTD) could be the impact of the pandemic, which then rippled on the drop in the price of oil and the volatile state of the foreign exchange (FX) market.
As at May 31, 2020, total transactions at the nation’s bourse decreased by 7.40 per cent from N128.67 billion (about $332.22 million) in April 2020 to N119.15 billion (about $307.32 million) in May 2020. Similarly, on a year-on-year (YOY) basis, total transactions decreased by almost half from the N221.13 billion recorded in May 2019.
There is no doubt that the global pandemic is largely responsible for the 46.12 per cent decrease in total transactions YOY in May 2020 since oil prices have a positive correlation with the stock market. COVID-19 created a demand shock in the oil market as lockdowns, curfews and social distancing reduced movement and travels; this led to oil price shock.
In May 2020, 70 per cent of the total market transactions were initiated by domestic investors while the remaining 30 per cent by foreign investors. Of the total N83.91 billion domestic transactions, 50.41 per cent were outflow transactions while 49.59 per cent were inflow transactions. Also, inflow transactions accounted for 52.30 per cent of the N35.24 billion foreign transactions while outflow transactions (N16.81 billion) accounted for the remaining 47.70 per cent.
Unlike what played out between January and February 2020 where there was decrease in the value of total domestic transactions compared to foreign, we saw a reverse between April and May 2020: an increase in the value of total domestic transactions (N83.91 billion) compared to foreign transactions (N35.24 billion) by circa 40 percentage points.
In the month of May 2020, for every N1 billion that came in through foreign inflow transactions in the market, about N2.25 billion was recorded for domestic inflow transactions. Put in another way, for very N1 billion of inflow transaction, domestic transactions accounted for about 69.30 per cent, while foreign transactions accounted for the remaining 30.70 per cent.
Similarly, while 71.56 per cent of the total outflow transactions were executed by domestic investors to the tune of N42.30 billion, 28.44 per cent (N16.81 billion) were closed by foreign investors.
The value of domestic transactions executed by domestic retail Investors surpassed institutional investors by 0.56 percentage point in May 2020. Of the total transactions executed by domestic investors, 50.28 per cent (worth N42.19 billion) was initiated by retail investors while institutional investors executed transactions worth over N41.72 billion, that is 49.72 per cent of the total domestic transactions.
A comparison of domestic transactions between the current and prior months (April 2020) revealed that total domestic inflow decreased by 4.69 per cent to N41.62 billion in May 2020 from N43.67 billion in April 2020—1.30 per cent increase in retail transactions, but 12.38 per cent decrease in institutional transactions. The decrease was as a result of the low market performance of domestic institutional investors.
Quite the contrary, total domestic outflow increased by 32.90 per cent from N31.82 billion (April) to 42.29 billion in May 2020: 9.31 per cent increase in retail transactions and 56.66 per cent increase in institutional transaction.
The month-on-month (MoM) comparison revealed that the institutional participation in the domestic market is gradually decreasing as more and more institutional investors exited the market in May 2020 with transactions worth of N24.94 billion (58.97 per cent of total domestic outflow transactions); yet not so much of them made buy-in, as evident in their transactions.
Another reason why domestic institutional investors are exiting the market is a direct relationship that exists between them and foreign investors—they go in wherever direction that foreign investors go. This implies that if foreign investors bet on a stock or a sector, domestic investors will go in similar direction. The domestic investors believe that foreign investors have the financial wherewithal to carry out research on any sector or stock of interest to them.
Although, the total inflow of market transactions (N60.04 billion) exceeded outflow (N59.11 billion) by N930 million, this does not reveal the real activities of the market. Total foreign outflow recorded its least transaction of N16.81 billion YTD, meanwhile it also recorded its least inflow of N18.43 billion YTD.
Despite that stocks are currently cheap in the market; foreign investors are not coming simply because a lot of them cannot exit the market. The Central Bank of Nigeria (CBN) is limited by the national reserves to meet the accumulating needs of those in need of forex as it has a forex demand backlog of about $1 billion dollar yet unmet.