BY BAMIDELE FAMOOFO
Amid the mixed trail of investor activities and rate of volatility witnessed in the local equities market in a wobbly year, strong appetite of domestic investors has continued to outperform the sentiments of foreign investors.
This was hinged on the fact that domestic investors since the start of 2022 began taking a bet on the domestic bourse. However, since the start of the second half of the year, the general market activity has been in a lull due to risk off sentiment ahead of the 2023 general elections and a lackluster macroeconomic environment.
In the local bourse, total foreign portfolio investment transactions rose to N2.08 trillion in 10 months ended October 31, 2022 and up 34.6 percent year on year from N1.54 trillion in the same period of 2021, signaling an upbeat in investor activities in portfolio investment through equities trading.
Thus, analyses of the trading data polled from the NGX showed that year-to-date, domestic investors accounted for the bulk of transactions which printed N1.73 trillion with a share of 83 percent, while foreign investors’ participation remained low at 17 percent (N350 billion).
“Since the capital flight triggered by the pandemic, foreign participation is yet to attain pre-pandemic levels; this is due in part to legacy issues of FX liquidity amid the fragile macroeconomic landscape,” financial experts at Cowry Assets Management noted .
The performance highlights of the transaction showed that foreign portfolio investors’ activities have continued to dwindle since the N1.22 trillion reported in 2018 to N435 billion in 2021.
In the month of October, total FPI transaction value in October represents a year on year decline of around 48 percent.
“A closer look reveals that foreign investors’ interests accounted for 26 percent while domestic investors were responsible for 74 percent of total transactions at the exchange which rose 34.42 percent from N81.90 billion in September 2022 to N110.09 billion in October 2022”
This can be attributed to the risk-off sentiment which pervaded the bourse since the close of June.
A closer look reveals that foreign investors’ interests accounted for 26 percent while domestic investors were responsible for 74 percent of total transactions at the exchange which rose 34.42 percent from N81.90 billion in September 2022 to N110.09 billion in October 2022.
Furthermore, the report from the NGX highlighted that activities of institutional investors were higher than that of retail investors by a difference of 42 percent as institutional composition of the domestic market surged 105 percent to N57.5 billion in October from N28.05 billion in the prior month. Meanwhile, a sharp comparison between the current and previous months showed that domestic transactions in the current and prior month (September 2022) revealed that retail transactions decreased by 29.64 percent from N34.18billion in September to N24.05billion in October 2022.
Group Managing Director, Cowry Assets Management, Johnson Chukwu, giving perspective to events in the market in the review period said: “Foreign participation in total equity transactions have steadily been on a decline over the years on the back of the lack of incentive to trigger sentiments as we also approach the election year. The fact that these foreign counterparts control a minimal 25 percent of the market may be a reason for the apathy on equities following the upward rate trajectory by the Nigerian apex bank chief. But we reckon that local institutional investors may have more incentive to remain in the market despite the rate hike while the risk averse investors will continue to exhibit apathy towards risk assets in the face of the rate hike.”
