According to the recently released data from the Nigerian Exchange Limited (NGX) on domestic and foreign investor participation for April 2021, the total value of transactions executed at the local bourse declined by 30.0% m/m to N159.9bn (US$389.8m) in April from N228.5bn (US$560.6m) in March. Breakdown of the data revealed that the dip in total transaction value was largely on the back of a significant decrease in transactions executed by domestic retail investors, down 66.4% m/m to N36.5bn (US$89.0m). Nevertheless, domestic investors still retained dominance of trading activities on the local bourse as their share of total transactions in April stood at 82.5% (YTD; 78.7%) while foreign investors' share of total transactions was 17.5% (YTD; 21.3%).
On domestic flows, transactions were dominated by institutional investors (previously by retail investors in the prior month) who traded N95.4bn (US$232.6m) while retail investors traded transactions worth N36.5bn (US$89.0m). We note that the reduced participation by retail investors caused a decline in activity level among domestic investors, down 29.7% m/m to N131.9bn (US$321.5m). We believe the intensified selloffs by retail investors was to the hunt for rising yields despite the release of impressive Q1 2021 results by sector bellwethers. Foreign outflows decreased to N9.8bn (US$23.9m) in April from N20.3bn (US$49.8m) in March. Similarly, foreign inflows declined to N18.2bn (US$44.4m) in April from N20.4bn (US$49.9m) in March. This led to a net inflow of N8.4bn (Us$20.4m) in April when compared with the net inflow of N0.1bn (US$0.2m) in March and marking the second consecutive growth in net inflows.
The decision by the MPC to maintain the status quo, which means there will be little or no fundamental changes in the direction of the equities market in our view. We expect investors to continue to invest in only fundamentally strong, high dividend-paying stocks. Also, we expect the constrained liquidity in the financial system to continue to drag performance in the local bourse. The recent move by the CBN to adopt the NAFEX window rate as the new official exchange rate tempers the currency risk, which had hitherto hampered the foreign inflow of capital. Following the recent strain in FX inflows, the need to provide stability and assurance in the Nigerian FX space has become pertinent. Foreign portfolio investors have had difficulty repatriating their funds in the last sixteen (16) months, making FX clarity top among factors that would drive renewed interest from FPIs.