Since 2014, foreign portfolio investors continued to exit the Nigerian economy albeit at a slower rate as it was manifested in 69.16 percent decrease in total foreign outflow from N846 billion in 2014 to N261 billion in 2016.
At the same time, there is a positive correlation between foreign outflow and inflow as the latter was down by 62.95 percent between 2014 and 2016 from N692 billion to N256 billion. Local investors likewise continued to pull out of the market as they reduced their investment from N1.1 trillion in 2014 to N517 billion in 2016. Consequently, total transactions at the nation’s bourse reduced by 43.51 percent from N2.67 trillion to N1.51 trillion within the same periods.
Amidst the volatility at the nation’s capital market, the continued decline recorded during the periods of 2014 to 2016 might be attributed to two major headwinds.
The first was the 2015 election uncertainties around the capital market which began to be priced in from late 2014. This led to the withdrawals of hot money as foreign outflow continue to outweigh inflow till 2016. The second headwind manifested in Q2 2016 when Nigeria staggered into recession. This of course affected both foreign and domestic investors’ participation in the stock market.
In 2017, the total transactions at the nation’s bourse increased from N1.5tn in 2016 to N2.5tn. Local investors improved their play in the market as total domestic transactions contributed 49.13 percent to the total transaction. As the market began to thrive, foreign investors hopped into the market which led to 133 percent increase in the total foreign transactions from N517 billion in 2016 to N1.2 trillion in 2017. Foreign inflow increased by 201 percent amounting to N772 billion by the end of 2017 year. The improvement in the market can be somewhat linked to the fact that Nigeria moved out of recession in Q2 2017.
Although foreign portfolio investment (FPI) continued to thrive into Q2 2018, another political panic started to affect domestic & foreign participation in equity trading from the end of Q2 2018. A rapid decline in the total transaction started from June 2018 when the total transaction was down by 41 percent to N187 billion from N318 billion in May 2018.
Source: NSE, BRIU
The second and third quarters (Q2 &Q3) 2018 continued to witness very low participation in equity trading as investors feared how new and existing government policies and regulations might affect the market. This indication was extrapolated by interviews with key players in the industry as well as in the foreign portfolio investment report by the Nigerian Stock Exchange (NSE), which showed that foreign portfolio investors’ inflows accounted for only 23.97 percent of total transactions while outflows accounted for 26.73 per cent of the total transactions by the end of 2018.
In May 2018, total foreign outflow was at maximum amounting to N130 billion even as total foreign transaction also hits maximum at N192 billion contributing 60.62 percent to the total transaction of N318 billion. Domestic transaction which amounted to N228 billion was at maximum in January 2018 but had its greatest contribution of 75.24 percent to the total transaction in July 2018.
The least transaction was recorded in October 2018 where the total transaction in the equity market dropped substantially to N121 billion. On the contrary, compared to every other month in 2018, foreign transaction contributed greatest in October with 68.73 percent of the total transaction while domestic transaction trailed behind contributing 31.27 percent to the total transaction in October 2018.
Domestic investors outperformed foreign investors by 4.54 percent in December 2018. Total domestic transactions increased slightly by 0.64 percent from N65.36 billion in November to N65.78 billion in December 2018. Also, total foreign transactions declined by 28.78 percent from N84.36 billion to N60.08 billion driven by a reduction in foreign inflows which reduced by 34.31 percent from N34.97 billion to N22.97 billion and foreign outflows which reduced by 24.86 percent from N49.39 billion to N37.11 billion over the same period.
By the end of 2018, institutional investors dominated the domestic investments with transactions worth N660 billion, representing about 55.74 percent of the total domestic transactions while retail investors were responsible for N524 billion worth of transaction which accounted 44.26 per cent of the domestic transactions.
Investors are skeptical about the equity market in 2019.The panic around the election constantly impels investors to withdraw funds as they await the outcome of the Nigerian 2019 elections because the direction of policies and regulations of the incoming administration could affect trades. There is consensus among analysts that stability will return to the market by the second quarter (Q2) after uncertainties surrounding the election might have subsided.
According to the Nigerian Stock Exchange (NSE), the equities market will be marked by volatilities in first half (H1) of 2019. NSE also speculated that swift approval and implementation of the 2019 budget may have a positive impact on companies’ earnings as well as consumer spending.
