Report: Nigerians Dominates Equities Market Transactions as Foreign Investors Continue to Exit

Nume Ekeghe

A report by United Capital Limited has revealed that local investors have continued to dominate trading activity at the Nigerian bourse, controlling 85.3 per cent of total transactions, leaving foreign investors with 14.7 per cent.

This, the report said, is as a result of the unprecedented exit of foreign portfolio investors (FPIs) due to uncertainties in the economy such as political risk, inaccessibility of foreign exchange, and other global trends.

United Capital stated this in its report titled, “Nigerian Equities Market H1-2022 Review and Outlook,” released over the weekend.

According to the report, “In line with our expectations, participation in the equities market was primarily driven by domestic investors. According to NGX data on Foreign and Domestic investor’s participation in the equities market at the end of Jun-2022, the breakdown of the market participants in the period under review shows domestic investors have primarily driven the market with 85.3 per cent of total transactions, leaving foreign investors with 14.7 per cent of total transactions in H1-2022.

“This data suggests the continuation of the declining trend in foreign players’ participation. Plausible factors highlighted in our FY-2022 economic outlook document, “Navigating Stormy Seas,” remain valid, particularly with the absence of positive catalysts, sustained FX illiquidity concerns and crystallisation of policy normalisation risks, thus creating a wet blanket on the attractiveness of the local equities market.”

The report added, “In H1-2022, domestic investors’ trading activities in the market have seen them record transactions worth N1.4trillion, as of Jun-2022, while international investor trading activities printed at N243.5billion. Analysing the activities of foreign equity investors along equity inflows vs equity outflows line shows a net outflow of N2.5billion, following total inflows of N120.5billion vs outflows worth N123.0billion at the end of H1-2022.

On pre-election year syndrome, which usually pushes for exit, it noted that historically, the final six months preceding an election year have always been negative for the equities market.

“Since 2002, Nigeria has had five general elections, of which the benchmark NGX-ASI has lost an average of 2.9 per cent in the second half, July December of the pre-election year.”

“Interestingly, the NGX-ASI has lost in four of the five-second half of the pre-election year over the five election cycles. Thus, excluding the single gain of 26.9 per cent in H2-2006 preceding 2007 general elections, Nigerian equities have lost an average of 10.3 per cent over four-second halves of pre-election years, ”it stated.

The report added that the poor performance of Nigerian equities in the second half of a pre-election year is better understood when analysing the behaviour of investor categories during the period.

“According to data from National Pension Commission (PENCOM), PFA allocation to domestic equities fell by an average of 14.8 percent in the second half of the last two pre-election years H2-2014: -15.0 per cent, H2-2018: -14.6 percent.

“PFAs who currently set the pace of equity market direction tend to develop itchy feet towards Nigerian equities in a pre-election cycle. For FPIs, the consensus that they tend to exit emerging market equities whenever an election season starts holds true for Nigeria. For context, over the past two pre-election years, data from the Nigerian Exchange Group (NGX) show that FPIs have been net sellers of Nigerian equities to the tune of N81.8billion in the second half of a pre-election year.

“In addition, data from the National Bureau of Statistics show that equity FPI inflows in the second half of the last three pre-election years have declined by an average of 26.9 per cent, compared to the first half of the same year, H2-2010: -2.2 percent, H2-2014: -13.4 percent, and H2-2018: -65.0 percent, ”it stated.