Domestic Investors Take  Shine off Foreign Investors

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The total money invested in Nigeria’s stock market by domestic and foreign investors in the last three years amounted to about N6.09trillion ($19.7billion) with domestic investors (retail and institutional) accounting for the bulk of the deal, reports Bamidele Famoofo

Analysis of data on the activities of domestic and foreign portfolio investors,  provided by the Nigerian Stock Exchange (NSE) showed that about N6.09trillion was invested in the bourse in the last three years.

Domestic (local) investors accounted for bulk of the investment between 2016 and 2018, injecting N3.16trillion into the market in three years. It represented 52 per cent of the total transaction value recorded in the market in the review period.  Domestic investors maintained the lead over their foreign portfolio counterpart in 2016 and 2017, but allowed the latter to get the upper hand in 2018 which continued till April, 2019.

Domestic investors (institutional and retail) are those investors which undertake investment in securities and other financial assets of the country they are based in while foreign portfolio investors purchase securities of foreign countries, such as stock and bonds, on an exchange. Portfolio investors can be viewed as investors whose primary motive for investing is to make quick money.

Total domestic investment as at the end of financial year 2016 stood at N633.8billion accounting for 55.0 per cent of total value traded compared to about N518billion recorded by foreign portfolio investors in the review period. Domestic investors raised the bar in 2017 when they increased investment by 112 per cent from N633.4billion in 2016 to N1.34trillion. But the tempo dropped in 2018 with domestic investment dropping by 11 per cent to N1.19trillion. On the flipside, foreign portfolio investment increased, though marginally, from N1.21trillion in 2017 to N1.22trillion in 2018, representing 0.83 per cent growth.  Moving ahead its domestic competition, foreign portfolio investors increased their stake in the market by 134 per cent from about N518billion in 2016 to N1.21trillion in 2018.

As at April ending in 2019, foreign participation in the market still outpaced domestic commitment accounting for about 53 per cent of total transaction value with N298.8billion as against N270.4billion by domestic investors.

Analysis of flow of funds of foreign portfolio investment showed that inflow was in excess of outflow in the last three years. Total foreign inflow in the review period amounted to N1.61trillion, while outflow stood at N1.34trillion, representing excess of N270billion or 17 per cent of inflow. Foreign inflow increased from N257billion in 2016 to N772.3billion in 2017, representing a 200 percent increase compared to increase in outflow which stood at 67 percent from N261billion in 2016 to N435billion in 2017. Inflow dropped by 25.3 percent to N577billion in 2018 compared to N772.3billion in 2017 while outflow on the hand jumped by about 48 percent from N435.3billion in 2017 to N642.7billion in 2018. Total inflow from foreign portfolio investors at 55 percent of total value is in excess of outflow in the three years period. 3-year average foreign outflow from the market stood at N447billion compared to an inflow of N537billion annually.

On the domestic front, institutional investors maintained dominance over their retail competition in the last three years. Aggregate investment by domestic institutional portfolio investors in the review period stood at N1.95trillion compared to N1.20trillion from their retail counterpart. Interestingly, domestic retail investors have shown more faith in the market than their institutional and foreign counterparts as they have invested more money every year from 2016 to 2018. A year-by-year analysis of investment showed that domestic retail investors moved from N279billion in 2016 to N398billion in 2017, representing 43 per cent increase. Though the rate of growth in 2018 dropped to 32 per cent, domestic retail invested about N529billion in the market as against N661billion by domestic institutional in 2018, which represented about 30 per cent shortfall compared to N938billion invested in the market in 2017. Foreign portfolio investors only increased their capital in the by 0.83 percent to N1.22trillion in 2018 from N1.21trillion in 2017.

2019 Performance

As at end of April 2019, total transactions at the nation’s bourse increased by 35.24 percent from N110.10 billion (about $359.3 million) recorded in March 2019 to N148.91 billion (about $485.9 million) in April 2019. The performance of the month of April when compared to the performance in the same period of the prior year (April 2018) revealed that total transactions reduced by 29.83 percent. In April 2019, the total value of transactions executed by foreign investors outperformed those executed by domestic investors by four percent.

A further analysis of the total transactions executed between the current and prior month (March 2019) revealed that total foreign transactions increased by 37.13per cent from N56.09 billion in March 2019 to N76.92 billion in April 2019. Total foreign outflows also increased by 38.3per cent from N30.20 billion to N41.78 billion whilst foreign inflows increased by 35.8per cent from N25.89 billion to N35.15 billion between March and April 2019.

Domestic Transactions

The value of the domestic transactions executed by institutional investors outperformed retail investors by 18 percent. A comparison of domestic transactions in the current and prior month (March 2019) revealed that retail transactions increased marginally by 6.6 per cent from N27.44 billion in March 2019 to N29.26 billion in April 2019. However the institutional composition of the domestic market increased more significantly by 60.8per cent from N26.58 billion in March 2019 to N42.73 billion in April 2019.

Total foreign transactions accounted for about 51 per cent of the total transactions carried out in 2018, whilst domestic transactions accounted for about 49 percent of the total transactions in the same period.

The actual performance in 2019 showed that the total foreign transactions carried out year till date (YTD) stood at about N298.79billion, whilst the total domestic transactions YTD is about N270.37 billion.

Meanwhile, foreign transactions which stood at N1.539trillion in 2014 declined to N1.219trillion in 2018. Over a12-year period, domestic transactions decreased by 66.7 percent from N3.556trillion in 2007 to N1.185trillion in 2018.