By Habibat Aliu
Amid the uncertainty, insecurity, sustained foreign exchange liquidity challenge, and other macroeconomic challenges, foreign investors’ appetite for stocks has continued to wane, even as participation from domestic investors accounts for 84% of total transactions conducted on the Nigerian Exchange Limited (NGX).
Despite election anxiety, local investors have continued to jostle for stocks with improved earnings and high dividend payout ahead of the interim dividend and 2022 full-year result.
Foreign participation in the local bourse has so far moderated in recent years due to issues around forex liquidity and monetary policy, placing their turnover at 16% according to the December 2022 edition of the domestic and foreign portfolio investment report of the exchange.
Consequently, the All-Share Index (ASI) advanced by 5.80% at the close of transactions on February 20, 2023, maintaining a bullish run since September 2022.
Analysts noted that this was partly as a result of unimpressive yield in fixed income securities, pushing investors to buy up fundamentally strong stocks with attractive dividend yields.
Historically, the market has typically experienced volatility during election season with some notable years, particularly the 1999 election, which saw change from military rule and the 2015 election.
The positive domestic investor sentiment, according to analysts, has been driven mostly by strong earnings and dividend payouts announced by companies in the wake of earnings season.
However, some analysts have advised cautious trading as the 2023 elections approach but maintained their positive outlook on dividend yields and capital appreciation in bellwether stocks.
An analyst with Parthian Securities, Azeezat Awonuga, whilst commenting on the market said that investors are poised to hunt for gains in the stock market as fixed income yields have moderated in recent times.
“As we anticipate earnings from the banking sector, which comprises about 60% of the volume in the market and also form the bulk of the fundamentals, positive earnings will push investors to plough more funds into the market,” she stated.
Another investment research analyst from Investment One Capital Management Limited, Akosile Oluwasanmi noted that uncertainties around the elections and the cash crunch in the economy could dampen investor sentiment into taking profits but added that positive corporate earnings could also see investors increasing their positions.
Recall that foreign portfolio investors’ participation in the first 10 months of 2022 closed at N349.59 billion, lower than N1.730 trillion transactions recorded by domestic investors within the same period.
The October edition of the Nigerian Exchange (NGX) report on domestic and foreign portfolio participation in equities trading showed that total equities market transactions increased Year-to-Date as at October 30, 2022 by 34.59 per cent to N2.079 trillion with local investors’ patronage surpassing those by foreign investors.
Specifically, the domestic investors pulled transactions of N1.730 trillion, representing 83.19 per cent in the first 10 months of the year, while foreign investors transacted total equities worth of N349.59 billion, representing 16.81 per cent.
Analysis of domestic transactions showed that retail transactions hit N580.83 as against N494.87 billion in 10 months of 2021, while the institutional composition of the domestic market amounted to N1.149 trillion under the period review, higher than N720.34 billion in the comparable period of 2021.