Uncertainty, inflation and other macroeconomic challenges have continued to weaken foreign investors’ appetite for stocks as the latest report by the Nigerian Exchange Limited (NGX) showed that the total value of transactions executed by domestic investors dominates the market by 76 per cent.
Specifically, the Domestic and Foreign Portfolio Investment report released by the NGX for May showed that total domestic transactions hit N285.8 billion in May 2023 while total foreign transactions stood at N37.16 billion.
Also, total domestic transactions accounted for about 84 per cent of the total transactions carried out 16 per cent of the total transactions in the same period. The transaction data showed that total domestic transactions stood at N945 billion, whilst total foreign transactions constituted N99.3 billion.
Recall that the equities market hit the biggest single gain in two years, rising by 5.23 per cent on May 29 as investors reacted positively to President Bola Tinubu’s ‘no more fuel subsidy and immediate unification of exchange rates’ pronouncements.
Tinubu also stated that his administration would target a higher gross domestic product (GDP) growth, create jobs, work towards a unified exchange rate and ensure that investors and foreign businesses repatriate their hard-earned dividends and profits home.
This resulted in a huge bounce as the total value of transactions executed by domestic investors outperformed transactions executed by foreign Investors by 76 per cent. The performance of the market over the last 16 years showed that domestic transactions decreased by 45.30 percent from N3.556 trillion in 2007 to N1.945 trillion in 2022 whilst foreign transactions also decreased by 38.47 per cent from N616 billion to N379 billion over the same period.
Further breakdown of the report indicated that domestic transactions decreased by 45.30 per cent from N3.556 trillion in 2007 to N1.945 trillion in 2022, while foreign transactions also decreased by 38.5 from N616 billion to N379 billion over the same period.
Institutional investors also outperformed retail Investors by 38 per cent. A comparison of domestic transactions in the current and prior month (April 2023) revealed that retail transactions increased by 19.29 per cent from N74.19 billion in April to N88.50 billion in May 2023.
As at May 2023, total transactions at the nation’s bourse increased by 68.88 per cent from N191.21billion (about $413.25million) on April 5 2023 to N322.92billion (about $693.99million) in May 6, 2023.
The performance of the current month when compared to the performance in May 2022 (N607.45 billion) revealed that total transactions decreased by 46.8 per cent. President of NewDimension Shareholders, Patrick Ajudua, said foreign investors are sitting on the fence to see the direction of economic reforms adopted by the new government. He also added that foreign investors are dissatisfied with the nation’s foreign exchange policy, which has made it difficult to repatriate their investments over the years.
Analyst, at Codros Capital said: “In the weeks ahead, we expect the re-introduction of the ‘willing buyer, willing seller model at the IEW to influence the exchange rate direction.
“Nonetheless, while the CBN’s abolishment of its multiple Forex windows is positive in boosting foreign investors’ confidence, we think they will adopt a wait-and-see approach, for now, looking for signals on the CBN’s plans to start clearing the forex backlogs and boosting forex supply to support the market in the near term.”
Meanwhile, the financial services industry dominated in volume terms at the end of last week’s transactions on the floor of the Nigerian Exchange Limited (NGX).
It led the activity chart with 2.5 million shares valued at N23 billion traded in 19,895 deals. Thus, it contributed 83.9 per cent to the total equity turnover and value.
The oil and gas industry followed with 162.226 million shares worth N4.174 billion in 2,953 deals. The third place was the conglomerates’ industry, with a turnover of 148.1 million shares worth N530.6 million in 1,962 deals.
Trading in the top three equities namely: Universal Insurance Plc, United Bank for Africa Plc and Guaranty Trust Holding Company Plc (measured by volume) accounted for 865.7 million shares worth N12.1 billion in 4,786 deals, contributing 25.7 per cent to the total equity turnover.
A turnover of 3.4 billion shares worth N41.9 billion was recorded in 39,764 deals by investors on the floor of the Exchange, lower than a total of 4.3 billion units valued at N62.176 billion that was exchanged in 44,344 deals on June 16, 2023.
A total of 106,871 units valued of Exchange Traded Products (ETP) valued at N106.5 million were traded in 26 deals last week, compared to 46,043 units valued at N50.724 million transacted in 25 deals during the preceding week.
On the price movement chart, the equities market recorded a marginal gain as bargain hunting in BUA Cement (+4.7 per cent), Dangote Cement (+1.2 per cent), and FBN Holdings (+9.5 per cent) lifted the All-share index and market capitalisation by 0.34 per cent to close the week at 59,206.63 and N32.237 trillion respectively.
Similarly, all other indices finished higher except NGX Lotus II which depreciated by 1.26 per cent while the NGX ASeM index closed flat. Consequently, the month-to-date and year-to-date returns for the index increased to +6.2 per cent and +15.5 per cent respectively.
Analysts predict a brighter outlook in anticipation of increased investors’ bargain-hunting and repositioning ahead of the half-year (H1) earnings and interim dividend payout by listed firms.
Analysts at Codros Capital said: “In the week ahead, we expect investors to continue to hunt bargains in search of alpha, amid early positioning ahead of the HY earnings season.
“However, we do not rule out the possibility of profit-taking activities. As a result, we think the local bourse will likely exhibit a choppy pattern. Therefore, we advise investors to take positions in only fundamentally justified stocks.”
