Domestic transactions on the nation’s bourse hit a six-month high in September as investors take advantage of stocks with low prices but strong fundamentals.
Fuelled by ample liquidity in the system and depressed yields in the fixed income market which hit a record low in September, domestic investors have been able to maintain a larger share of total transactions in the Nigerian equity market.
Total transactions increased by 42 percent month on month to N134 billion in September against N94.45 billion in August. Domestic transactions accounted for 70.33 percent of all transactions, valued at N94.92 billion while the foreign transactions accounted for 29.67 percent of the total transactions valued at N40.05 billion.
On a year on year comparison, transactions slumped 5 percent in September 2020 from N141.45 billion in corresponding period of 2019, reflecting the impact of a COVID-19 induced slump in crude oil price on the performance of stocks measured by All Share Index (ASI) in 2020.
During the period, the ASI shed approximately 30 percent in market value with most stocks hitting their all-time low as foreign investors take flight amid COVID-19 implications on the economy.
In the last nine months, domestic investors have carried out transactions worth N825.94 billion with monthly transactions, on the average, accounting for 61.96 percent of total transactions while foreign investors, N510.25 billion with monthly transactions accounting for 38.03 percent on an average.
During the period under review, foreign investors sold off N334.94 billion worth of stocks in response to the COVID-19 induced slump in oil prices which saw Nigeria’s dollar reserve deplete significantly given her heavy reliance on FX earnings from the sales of crude oil. However, foreign investors reduced exposure to the Nigerian equity market when oil prices began rebounding, ignoring also cheap valuations of fundamentally strong stocks.
The resultant effect is that despite buy pressure from domestic investors (retail and institutional) market performance has is still weighed by low foreign investment inflows.
Attracting new inflows looks very unlikely in the short to medium term considering the lingering challenges in the FX market and the fact that we have not really seen a clear cut pronouncement from the CBN as to how they intend to solve the backlog of demand for FPI also intervention in the I&E window is below intervention the macro condition is still uninspiring too.
“FPI selling activities have been constrained by liquidity challenges in the FX market. Looking back at the second quarter when market lost about 20 percent in the month of April and foreign investors could not get the much needed liquidity to repatriate their funds, which caused reinvestment in bellwether stocks.
“The CBN’s dollar demand management strategy will continue to keep foreign investors in the side lines pending when we can see an improved flexibility in FX market and stronger macro condition,” Gbolahan Ologunro, senior research analyst at Cordros Capital said.
Foreign outflows increased to N26.1 billion ($67.8 million) in September compared with N21.3 billion ($55.3 million) in August. Foreign inflows decreased to N14.0 billon ($36.4 million) in September from N17.7 billion ($46.0 million) in August resulting in a net outflow of N12.1 billion ($31.4 million) in September compared with a net outflow of N3.7 billion ($9.6 million) in August.
On the domestic front, transactions were dominated by institutional investors who traded N59.2 billion ($153.8 million) while retail investors executed transactions worth N35.7 billion ($92.7m). Volume of transactions among retail and institutional investors grew 34.1 percent and 105.2 percent respectively.
