Foreign investors’ interest in stocks has continued to decline amid unpredictability, insecurity, a persistent foreign exchange liquidity crisis, and other macroeconomic difficulties, despite the fact that domestic investors participate in 84% of all transactions made on the Nigerian Exchange Limited (NGX).
Ahead of the interim dividend and the 2022 full-year results, local investors have persisted in bidding for businesses with better profitability and large dividend payout despite election anxiety.
According to the December 2022 edition of the exchange’s domestic and foreign portfolio investment report, foreign participation in the local bourse has so far reduced in previous years due to concerns over currency liquidity and monetary policy, placing their turnover at 16%.
As a result, the All-Share Index (ASI), which had been on a bullish run since September 2022, increased by 5.80% at the close of trading on February 20, 2023. Experts remarked that this was largely due to the fixed income instruments’ underwhelming yield, which encouraged investors to purchase fundamentally sound stocks with alluring dividend yields.
With some significant exceptions, such as the 1999 election, which witnessed the end of military dictatorship, and the 2015 election, the market has historically been volatile during election season.
According to economists, the robust earnings and dividend payouts reported by firms during earnings season have mostly been responsible for the upbeat domestic investor attitude.
Yet, other experts continue to retain their favorable outlook on dividend yields and capital appreciation in bellwether equities while advising cautious trade as the 2023 elections draw near.
Azeezat Awonuga, an analyst at Parthian Securities, stated in a market commentary that investors are prepared to look for gains in the stock market while fixed income yields have recently eased.
“As we anticipate earnings from the banking sector, which comprises about 60 per cent 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.
Akosile Oluwasanmi, a different investment research analyst from Investment One Capital Management Limited, pointed out that investor sentiment may be dampened by the uncertainty surrounding the elections and the economic cash crunch, leading them to take profits, but added that positive corporate earnings may also lead investors to increase their positions.
Remember that domestic investors registered N1.730 trillion in transactions in the first ten months of 2022, while international portfolio investors’ participation concluded at N349.59 billion.
The Nigerian Exchange (NGX) report from October on domestic and international portfolio involvement in equity trading revealed that local investors outperformed foreign investors in terms of total equities market transactions, which grew year over year to N2.079 trillion as of October 30, 2022.
In the first 10 months of the year, domestic investors made transactions totaling N1.730 trillion, or 83.19 percent, while overseas investors made transactions totaling N349.59 billion, or 16.81 percent.
Analysis of domestic transactions revealed that retail transactions totaled N580.83 as opposed to N494.87 billion in the first 10 months of 2021. Institutional investors made up a larger portion of the domestic market, totaling N1.149 trillion during the review period as opposed to N720.34 billion during the same period in 2021.
