The Nigerian Stock Exchange (NSE) data on domestic and foreign investor participation for January revealed that activity level in the stock market was high, as total value of transactions grew 84% m/m to N235.5 billion.
The sturdy growth in the level of transactions was driven largely by domestic investors, as the value of transactions executed rose by 155% m/m to N165.1 billion from N64.8 billion in December 2019.
We believe the strong participation of domestic investors was spurred by buoyant system liquidity following the restriction placed by the CBN on individuals and Pension Fund Administrators from investing in OMO bills. As a result, this segment of the market could no longer invest funds from maturing OMO bills, leading to a surge in the amount of the funds chasing existing asset classes.
We recall that there was a lot of buying interest in high dividend yield stocks particularly in the banking sector with tickers such as UBA, ZENITH, GUARANTY & FMN recording significant gains.
Despite the improvement in the value of transactions executed by foreign investors (up 11% m/m to N70.3 billion), we highlight that foreign investors’ outflows from the local bourse outpaced inflows for the fourth consecutive month. Specifically, foreign investors’ net outflows rose to N22.7 billion in January compared to N19.8 billion in December 2019. In our view, this reflects the fact that foreign investors interest in the local bourse remains weak despite attractive valuations.
We think the absence of structural reforms in strengthening the resilience of the domestic economy, rising vulnerabilities to external shocks, heightened uncertainty in the banking sector given the flurry of regulatory guidelines from the CBN are fundamental issues inhibiting foreign investors appetite for Nigerian equities.
Considering the outbreak of coronavirus (COVID-19) which has disrupted global supply chain and the downturn in oil prices (crude oil prices are down c.50% from US$68.91/b at the start of the year), we expect foreign investors to remain averse towards Nigerian equities.
With respect to domestic investors, we expect subdued interest in the local bourse given heightened concerns around a currency devaluation and the tendency to want to hold foreign currency. Accordingly, we envisage that domestic investors will trade cautiously with many remaining on the sidelines.
CSL STOCKBROKERS LIMITED CSL Stockbrokers,
Member of the Nigerian Stock Exchange,
First City Plaza, 44 Marina,
PO Box 9117,