As Nigeria’s Local Portfolio Investors Regain Confidence

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Business/MONEY 

Between 2007 and 2010, domestic portfolio investors (retail and institutional) dominated activities in the portfolio investment of the Nigerian Stock Exchange (NSE), but the crash in stock prices after a peak witnessed in 2008, owing to a global financial crisis made them to beat a retreat, relinquishing their dominance to their foreign counterparts. Bamidele Famoofo reports that the battle for supremacy may have begun between the local and foreign players as the latter appear to have regained confidence from the shock

In 2007, total portfolio investment by domestic and foreign investors stood at N4.17trillion (about $13.7billion today) according to figures published by the Nigerian Stock Exchange (NSE), and 85.2 per cent of that value was accounted for by domestic investors (retail and institutional). In value terms, domestic or local investors injected about N3.56trillion in the market in the year. The dominance continued in 2008 with domestic investors pulling weight with their N3.97trillion in portfolio investment, representing 83.5 percent of the total N4.76trillion invested by both foreign and domestic investors in the period.

Domestic investors continued to hold sway on the NSE, though at a declining rate until 2010 before the tide turned in 2011, due to the debilitating impact of the global financial markets crash on the Nigerian bourse which took effect from 2008. So, in 2009, dominance began to wane as investment by domestic investors in the stock exchange dropped to N947billion, accounting for 69 per cent of about N1.37trillion investment by portfolio investors in the market. Meanwhile, in 2010, domestic investors again upped their game with N1.02trillion which represents 64 per cent of gross value as their foreign counterparts also increased their stake in the Nigerian bourse to N577billion, up by about 37 per cent compared to N425billion invested in 2009.

However, domestic investors lost their steam from 2011 when total contribution to portfolio investment in the exchange dropped to N422billion or 33.2 per cent, while their foreign counterparts took over with a controlling share of 66.8 per cent of total portfolio investment of N1.27trillion. Foreign investors for the first time since 2007 increased their stake in the market to N808billion. Though the tempo dropped in 2012, they (foreign investors), maintained their lead over their domestic counterparts with 61.3 per cent of total portfolio investment of about N1.32trillion with their N808billion contribution. Up until 2015, foreign portfolio investors continued to maintain their lead over their local counterparts though at a declining rate. Their contribution to total portfolio investment in 2015 stood at 53.8 per cent or about N1.03trillion compared to N881billion by domestic portfolio investors. Total portfolio investment in 2015 was put at about N1.91trillion compared to about N2.68trillion recorded in 2014. With about N1.54trillion invested in 2014, the foreigners was ahead of their local competitors as the accounted for 57.5 percent of total portfolio investment, while local portfolio investors also accounted for N1.14trillion or 42.5 per cent of total portfolio investment in the period.

Foreign portfolio investment on the bourse dropped notably in 2013 with the foreigners accounting for only 50.8 per cent of total the value with about N1.04trillion as against about N1.01trillion splashed on the market by their local counterparts, representing 49.2 per cent of total portfolio investment in the financial year.

What appears to be a turnaround of the dominance by foreign portfolio investors happened in 2016, when local portfolio increased their investment to N634billion over their foreign counterpart’s N518billion, representing 55.03 percent. Total portfolio investment in 2016 stood at about N1.15trillion and that was increased to about N2.54trillion in 2017, with local investors accounting for about N1.34trillion or 52.5 per cent while foreign portfolio investors accounted for about N1.21trillion or 47.5 percent.

Whilst foreign portfolio contribution increased to 50.7 per cent of total investment in2018, N1.19trillion from the coffers of local investors compared to N1.22trillion from their foreign competitors was close and market pundits are confident that local portfolio investors, especially institutional investors will keep pulling weight in the market post- election and as the economy continues to show recovery signs.

“Between 2011 and 2015, foreign transactions consistently outperformed domestic transactions. However, domestic transactions marginally outperformed foreign transactions in 2016 and 2017, and remained almost at par in 2018”, NSE remarked.

Meanwhile, as at 28 February 2019, total transactions at the nation’s bourse increased by 54.06per cent from N122.08 billion recorded in January 2019 to N188.08 billion (about $613.9 million) in February 2019. The performance of the current month when compared to the performance of the same period (February 2018) in the prior year revealed that total transactions reduced by 11.3 per cent. These total transactions were executed by domestic and foreign investors; domestic investors are further categorised into retail and institutional investors. In February 2019, the total value of transactions executed by foreign investors outperformed those executed by domestic investors by 6.0 percent.

A further analysis of the transactions executed between February and prior month (January 2019) revealed that total foreign transactions increased by 48.0percent from N66.85 billion in January 2019 to N98.94 billion in February 2019. There was a significant increase in foreign outflows which increased by 97.8percent from N27.81 billion to N55.01 billion and foreign inflows which increased by 91.24percent from N22.97 billion to N43.93 billion between January and February 2019.

The value of the total transactions executed in the domestic market by institutional investors outperformed retail investors by 8 percent. A comparison of February and prior month (January 2019) transactions revealed that the total retail transactions increased by 38.26 percent from N29.66 billion in January 2019 to N41.01 billion in February 2019. The institutional composition of the domestic market also increased significantly by 88.15 per cent from N25.58 billion in January 2019 to N48.13 billion in February 2019.

This indicates a higher participation by institutional investors’ over their retail counterparts in February 2019.