• Wednesday, June 19, 2024
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BusinessDay

Retail investors pile into stock market despite weaker purchasing power

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Domestic retail investors bought five times more stocks in the first quarter of 2024 compared to the previous year, despite accelerating inflation that curbed purchasing power.

Total transactions by retail investors grew more than fivefold to N670.89 billion in the first quarter of 2024 from N123.28 billion in the same period of 2023, according to data from the Nigerian Stock Exchange (NGX).  

Nigerians are investing more in the stock market at a time when accelerating inflation has lowered their purchasing power.

Nigeria’s headline inflation quickened for the 15th straight month to a 28-year high of 33.2 per cent in March.

Banjo Otuniyi, a digital marketer in Lagos, said that he sparingly invested in stocks last year, and made good returns but has invested even more this year as he eyes higher returns.

“I invested heavily in the stock market early this year compared to 2023 because I didn’t want to lose out on the huge gains others witnessed last year,” Otuniyi said.

Retail investors were so active in the stock market that the volume of transactions they conducted outpaced institutional investors at the end of the first quarter of 2024 by 1.1 per cent.

This differs largely from the first quarter of 2023, where domestic institutional investors led the market, outperforming retail investors by 186.53 per cent.

However, some retail investors have lamented that inflation reduced their investing power and impeded their ability to grow wealth.

According to a survey conducted by BusinessDay, 89 per cent of the 40 respondents said that inflation reduced the amount they dedicate to investing, which affects their ability to grow wealth in the long term.

Iysa, a respondent who wished to be identified only by first name, stated that his purchasing and investing power has reduced due to his increased cost of living as a result of high inflation.

“Last month, for example, I had to prioritise a particular type of investment over the other based on the high returns and how it’ll affect my future. But, it meant I had to put my money in specific asset classes, which is not a viable investment strategy,” he said.

According to data by NGX, retail investors’ took a step back from the stock market in February 2024, as total transactions declined by 21.78 per cent to N223.37 billion in March 2024 from N285.58 billion in January 2024.

In addition, respondents also revealed that the instability in the FX market also affected their ability to grow wealth.

Issa also noted that his ability to invest in foreign markets has been impacted.

“I now have to reduce the amount I invest in foreign markets with the dollar/naira rates. Say, I used to invest $20, I can no longer get that amount for the same equivalent of naira, making it expensive to invest in dollar stock markets,” he stated.

Finally, another survey conducted by BusinessDay revealed that many retail investors would invest extra income or bonuses in stocks or bonds, instead of keeping it in cash.

Out of 40 respondents, 33 per cent would start a business, if they earned a bonus in 2024, while 39 per cent would invest the money in stocks or bonds.

However, 26 per cent of respondents were bullish on real estate, seeing it as a viable form of investment for extra income, and less than 10 per cent will keep the money in cash or buy something big.