• Saturday, July 13, 2024
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BusinessDay

Domestic transaction sees biggest fall in 5 years

Equity-market

Not motivated by economic policies and the need to safe guide investment value as Nigeria equity market continues bearish trend, domestic investors’ transaction records biggest decline year on year in the last five years.

Trend analysis over the last 5 years has shown that total domestic transaction in the month of July on the exchange slumped by 49 percent when compared with levels in the corresponding period of 2018.

The decline in transaction was fuelled by sell-offs undertaken by retail investors dumping N13.10 billion worth of investments against exposure of N12.34 billion in the stock market for the period.

According to the NSE monthly foreign portfolio transaction for the month of July, total domestic transactions decreased significantly by 72.22 percent from N200.51 billion in June to N55.69 billion in July. This is the biggest decline recorded so far in the year 2019.

Analysts fear that going forward we may see history repeat itself as in the case of 2016 when the country entered into a recession and saw domestic involvement in the market dipped 28 percent in value to N49.51 billion in July from N63.36 billion in 2015.

“Outlook for the equities market remains subdued as we believe that the on-going trade spat between US and China which has raised concerns of a slowdown in the global economy will continue to inhibit foreign investors’ appetite for risky assets in emerging economies,” a report by CSL stated.

Domestic investors’ dampened appetite in the stock market especially that of retail investors is believed to be driven by unimpressive corporate earnings from many consumer goods companies such as Unilever Nigeria, Dangote Sugar, and Dangote Cement.

BusinessDay’s observation of Unilever’s H1 financials shows that the company’s turnover declined marginally by 1 percent having N10.5 billion in 2019 from N10.6 billion in 2018 while Dangote cement recorded a 5 percent decline in its revenue from N344 billion to N328 billion, Dangote sugar recorded a drop in its revenue as well by 4 percent sliding from N84 billion to N80.3 billion

This according to CSL report is coupled with weak appetite for risky assets, owing to trade tensions between China and U.S which continues to stoke fears of an impending global recession

Specifically for Nigeria, the positive correlation between oil prices and stability in exchange rate makes the country extremely vulnerable to external shocks.

Also triggering selloffs amongst foreign investors is the fear of losses when positions are revalue on the back of strengthening dollars against the naira as this has been the case since 1995.

On Monday, equities market opened the week on a bearish note as the All Share Index declined 39 basis points to 27,691.85 index points due to sell-offs in Seplat (-10.0%), CCNN (-6.0%) and international breweries (-8.7%).

As a result, investors lost N52.7 billion as market capitalisation fell to N13.5 trillion and YTD loss worsened to -11.9 percent.

DAVID IBIDAPO & GBEMI FAMINU