Equities Market Improves as FPIs Move Out

Domestic investors’ participation in the Nigerian Exchange (NGX) improved further as foreign portfolio investments (FPIs) reduced in the financial year 2021, according to the latest equity market report.

Nigeria’s has continued to see less than usual level of hot money plays in the local financial market amidst the scarcity of dollars.

While pre-election year demand for dollar dominate analysts discusses, many foreign investors are still finding it difficult to exit position since capital control measures by the Central Bank keeps dollar repatriation in check.

CBN capital control measures have been part of the monetary authority’s moves to keep the local currency from free falling, though the naira continues to depreciate across FX markets.

At the weekend, analysts told MarketForces Africa that sizeable FX backlogs have impacted the attractiveness of the Nigerian market to foreigners.

NGX report on domestic and foreign portfolio participation in equities trading showed that total equities market transactions plummeted in the year 2021 compared to the value of transactions executed in the corresponding year of 2020.

The decrease in the total transaction was chiefly due to the very weak appetite of foreign portfolio investors (FPIs) amid sustained fear of foreign exchange volatility eroding their returns on investment, according to Cowry Asset Limited.

Analysts said foreign investors appeared to have their reservations about the Naira not being fairly priced against the greenback.

Nevertheless, local investors, especially the institutional players, dominated the equities market as they accumulated more shares to take a position in some fundamentally sound stocks as they await the release of the full year 2021 financial results of corporates.

With the recent releases of companies’ unaudited FY 2021 financial statements, domestic investors appear to be set for a rewarding dividend pay-out – as their returns are not as prone to exchange rate risk, Cowry Asset noted.

Analysts at the investment firm saw local players’ participation in the equities market increase in the second half of the year than in the first – as fixed income securities yields, especially treasury bills yield, nosedived in the second half of 2021 contrary to its northward direction in the first half of the year.

Further breakdown showed that domestic institutional investors generated the highest transaction value, followed by retail investors; while foreign portfolio investors’ contribution remained the least with N24.74 billion net outflows.

It was noted that the ratio of total domestic transactions to total foreign transactions tilted higher to 77: 23 to end the year 2021, from 66:34 in the year 2020.

The report shows that total domestic transactions increased by 1.84% while total foreign portfolio transactions plummeted by 40.41% – amid net foreign investors’ outflows.

Year on year, total transactions on the NGX mellowed to N1.89 trillion in 2021 from N2.17 trillion in 2020); of which total domestic transactions rose marginally to N1.46 trillion (from N1.43 trillion).

However, the FPI transactions decreased significantly to N434.50 billion in the review period from N729.20 billion in 2020, according to the NGX report. Read: Money market edges out equity as bearish trend persists

A further breakdown of the FPI transactions in 2021 showed that foreign portfolio inflows moderated to N204.88 billion from N247.27 billion. Also, foreign portfolio outflows decreased to N229.62 billion in 2021 from N481.93 billion.

On the part of local investors, analysts said they saw an increased stake in the equities market – their purchase transactions were N743.52 billion, higher than N721.16 billion worth of outflows.

Further breakdown showed that retail inflow transactions were N283.96 billion, a level that was moderately lower than N294.07 billion outflows seen in the period as they largely sold off more than they accumulated.

In the period, domestic institutional investors’ inflow transactions were N459.46billion, higher than the N427.15 billion worth of outflows from them, according to the analysis of the figure.

Hence, Cowry Asset Limited said local institutional investors threw their weight behind the equities market chiefly in the second half of 2021, the NSE All-Share Index (ASI) rocketed by 6.07 per cent to 42,716.44 index points to end the market session in 2021.

In the period stop rate for 364-day T-bills moderated to 4.90% in December 2021 from 9.15% in June 2021.