Tight FX fails to halt local investors’ FPIs reign on NGX with N132bn

By Charles Abuede

Domestic investors have continued to dominate activities on the local bourse in spite of the situation in the currency market, with its attendant illiquidity level in the FX segment, as their total share of transactions printed 82 per cent in April 2021, compared to 82.2 per cent in March, while foreign investors accounted for 18 per cent of the total transaction, and higher by 20 percentage points from 17.8 percent recorded in the previous month, as contained in market performance data released by Nigerian Exchange (NGX).

The overall data are, however, an indication of a general bearish condition at play in the local bourse as aggregate transactions still points to a decline.

According to the data polled by the Nigerian Exchange Group (NGX) from market operators on their domestic and foreign portfolio investment (FPI) inflows for the month of April 2021, total transaction decreased 30.01 per cent to N159.9 billion or $389.9 million from N228.49 billion or about $560.55 million transacted in March 2021. The performance of the reviewed month when compared to the performance in April 2020, which stood at N128.67 billion, shows that total transactions increased by 24.29 per cent. The growth in total transactions reflects increased buying enthusiasm as investors sought to take advantage of market dips to gain exposure to high dividend yield stocks. In April 2021, the total value of transactions executed by domestic investors outperformed transactions executed by foreign investors by 64 percent.

In line with projection by market analysts that domestic investors will remain dominant players in the equities market until the FX situation is remedied, the institutional investors in the local bourse outperformed retail investors by 44 per cent.

A comparison of domestic transactions in April and prior month (March 2021) revealed that retail transactions decreased by 66.37 per cent from N108.55 billion in March 2021 to N36.50 billion in April 2021. However, the institutional composition of the domestic market increased by 20.32 per cent from N79.30 billion in March 2021 to N95.41 billion in April 2021.

Furthermore, a breakdown of the total transactions executed on a month on month basis showed that between March and April this year, the total domestic transactions decreased by 29.78 per cent from N187.85 billion in March to N131.91 billion in April 2021. Similarly, total foreign transactions decreased by 31.05 per cent from N40.64 billion or about $99.7 million to N28.02 billion or about $68.31million between March and April 2021.

Meanwhile, over a 14-year period, domestic transactions decreased by 59.54 per cent from N3.6 trillion in 2007 to N1.4 trillion in 2020, whilst foreign transactions increased by 18.45 per cent from N616 billion to N729 billion over the same period.

However, total domestic transactions accounted for about 74 per cent of the total transactions carried out in 2020, whilst foreign transactions accounted for about 26 per cent of the total transactions in the same period. Though the transaction data for 2021 shows that total foreign transactions stand at N178.25 billion, whilst total domestic transactions are N658.21 billion.

In other parts of the data reported by the Nigerian Exchange Group (NGX), for the first three months in 2021, trading activities recorded an advancement when compared with Q1 2020 as the total volume and value of securities traded rose by 26.90 per cent and 8.46 per cent, respectively. There was a 10.18 per cent increase in the average daily value traded from N4.89 billion or $12.69 million in Q1 2020 to N5.39 billion or $13.19 million in the period under review. In the same vein, the average daily volume of securities traded grew by 28.91 per cent to 499.52 million units in Q1 2021, from 387.50 million units in Q1 2020. At the end of the quarter, the average price-earnings (PE) ratio of the NGX’s listed equities stood at 87.25 while equity turnover velocity was 6.05 per cent.

Consequently, the total value of foreign transactions on the exchange stood at N150.23 billion or $370 million between January and March 2021; though, foreign transactions accounted for 22.21 per cent while domestic transactions accounted for 77.79 per cent of the total transaction during the first quarter of 2021.

The NGX began the 2021 trading year on a high note following the bullish run experienced in the last quarter of 2020. Although, the optimism that shaped the capital market at the beginning of the year declined towards the end of Q1 2021. This can be seen in the return posted by NGX All-Share Index (ASI) which closed the quarter at 39,045.13 points, signifying a 3.04 percent decrease from 40,270.72 points at the start of the year.

Nonetheless, all equity market indexes, except the NGX ASEM index, posted positive one-year returns.

A cursory look into the sectoral fronts by performance during the review period gave the snapshot that the ICT sector was the best performing sector during the quarter as it recorded a 127.7 per cent 52-week change and a market capitalisation of $16.58 billion or N6.8 trillion. It was followed by the industrial goods sector with $16.3 billion or N6.7 trillion; financial services and consumer goods sectors, with $9.3 billion or N3.8 trillion and $5.5 billion or N2.23 trillion in capitalisations, respectively. Performing from the bottom was the natural resources sector with $20.5 million or N8.4 billion in market cap, as well as the healthcare and conglomerates sectors that recorded $85 million or N34.7 billion and $152.3 million or N62.23 billion in market cap between January and March 2021.

Meanwhile, the large-cap firms on the exchange performed largely and recorded $39.74 billion or N16.24 trillion in total market cap while the mid-cap and small-cap companies’ performances were noticeable as they recorded about $7.7 billion or N3.14 trillion and $2.57 billion or N1.05 billion during the review period.