Local investors take charge as foreign investors remain cautious amid FX scarcity

Renewed positive sentiments in the global space dominated markets in the month of May as investors’ optimism for a speedy economic recovery continues to support appetite for risky assets. This is also coming on the heels of ease in lockdown and gradual reopening of economic activities.

In Nigeria, domestic investors took the driving seat at the nation’s equities market in the month of May as they took positions in cheap and dividend-paying bellwether stocks.

On the other hand, foreign investors who are unable to move their funds from the country due to FX scarcity rolled their money back into the equities market.

In the month of May, total value of transactions executed by domestic Investors out performed transactions executed by Foreign Investors by 40percent.

According to data released by the Nigeria Stock Exchange, total transactions executed between May and April revealed that total domestic transactions increased 11.15percent from N75.49billion in April to N83.91 billion in May 2020. However, total foreign transactions decreased by 33.73percent from N53.18 billion in April to N35.24 billion in April.

Total transactions at the nation’s bourse reduced 7.40percent to N119.5billion, the lowest year-to-date, from N128.67billion recorded in April. The performance in May when compared to the performance in May 2019 decreased 46.12percent

Domestic retail investors marginally outperformed Institutional Investors by 0.56percent. A comparison of domestic transactions in May and April 2020 revealed that retail transactions increased 4.38percent from N40.42 billion in April 2020 to N42.19 billion in May 2020.

Similarly, the institutional composition of the domestic market increased by 18.96percent from N35.07 billion in April 2020 to N41.72 billion in May 2020. This is due to excess liquidity from OMO maturities that found their way into the equities market due to the new CBN policy banning individuals and non-corporate banking from the high yield OMO market.

“The recent rally is not fundamentally driven, what we have seen is more from investments that cannot exit the Nigerian market due to the backlog of FX demands, also maturing debt instruments found their way into the equity market rather than being rolled over at very low-interest rates, Ayo Ogunmola, a Lagos-based stockbroker said.

According to him, last month saw a positive comeback in major markets across the globe due to interventions from Monetary authorities across the globe.

“We saw that reflected in Nigeria across the board. What was fueling the rise in asset prices is Central Banks’ liquidity. The amount of liquidity pumped into the system by the U.S Federal Reserve between March and April has gotten to about $3 trillion. They pumped in about $3 trillion into buying a range of assets such as US Government bonds, U.S backed mortgage securities, and even investment-grade corporate bonds,” he said.

“So, the liquidity helped assets to climb upwards. Whatever obtains within the U.S market usually tends to happen across the globe. The U. S makes up about 40percent of the global stock market capitalization. So, the U.S direction tends to sway the global market either upwards or downwards. Therefore, because the U.S market has been bullish, the Nigerian market was also bullish.” he added.