Domestic Investors Load up on Stocks With N2.45trn Exposure

Nigerian domestic institutional investors bought about N2.45 trillion in equities as at September 2023, which represents a 48.90 percent increase in transaction from 2022’s N1.64 trillion, despite a sluggish economic growth, according to a recent report by Cordros Securities Limited.

Interestingly, domestic investors accounted for 88.1 percent of the total market share in the period while foreign clings to apathy towards local equities.

The critical reforms by the new government underpinned investors’ confidence in Nigeria stocks as the country’s index has one of the highest year to date returns (YTD) globally.

“The renewed interest in Nigerian stocks during this period was attributed to optimism following critical policy reforms by the new administration, particularly the liberalisation of the FX market,” said analysts at Cordros Securities Limited.

The local stock market sustained its momentum from 2022, as the NGXASI index has gained 41.01 percent so far this year.

However, foreign exchange crisis and difficulty in accessing and repatriating funds have soured foreign investors’ appetite for the Nigerian equity market, despite the market-friendly policies of the new government.

In the first nine months of 2023, foreign investors’ total transaction value in the market settled at NGN258.02 billion, representing a 19.6 percent decline compared to 2022FY (N321.04 billion), according to data from Cordros Securities.

Drilling down the numbers, foreign inflows amounted to N108.93 billion (as of September), against total outflows of N149.09 billion, translating to a net foreign portfolio investment (FPI) deficit of N40.16 billion, added the investment house.

There are still concerns about the deteriorating macroeconomic conditions, exacerbated by the removal of subsidies on fuel and unification of the exchange rate that sent the Naira crashing.

Economic growth has been slow as Nigeria’s Gross Domestic Product (GDP) grew by a tepid 2.54 percent (year-on-year) in real terms in the third quarter (Q3) of 2023.

In November 2023, the overall inflation rate rose to 28.20%, surpassing the October 2023 rate of 27.33 percent. This indicates a month-on-month increase of 0.87 percent.

Analysts at Cordros Securities expect a bullish sentiment in 2024 and they are of the conviction that market sentiment will be shaped by a combination of (1) evolutions in the FX landscape, (2) prospects of improved macroeconomic conditions which will enhance corporate earnings, (3) direction of monetary policy authority, and how actions may impact on fixed income yields, and (4)sector-specific events.

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