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Domestic participation in stock market soars as investors ga



Despite uncertainty in the nation’s political space, in addition to prolonged foreign exchange (forex) illiquidity and other macroeconomic challenges, coupled with the crises rocking the global economy, improved corporate earnings churned out by listed firms spurred local patronage in equities as investors gain about N5.6 trillion or 19 percent in 2022.

The figure is, however, higher than the marginal 5.7 per cent growth recorded in 2021.

At the closed of transactions in 2022, the All-Share Index (ASI) appreciated by 19.98 per cent to close on December 30, 2022, at 51,251.06 points from 42,716.44 points at which it opened trading on January 4, 2022. Similarly, market capitalisation for the period gained from N5.618 trillion to N27.198 trillion on December 30, 2022, from N22.297 trillion.

Although foreign investments in equities waned in 2022, amid lingering FX liquidity constraints, and heightened global uncertainties, however, improved domestic investors’ appetite for stocks triggered a high level of activities that engendered credibility and relative stability in the market.

For instance, the foreign portfolio investors’ appetite for equities dropped in the first 10 months of 2022 as participation closed at N349.59 billion, lower than N1.73 trillion transactions recorded by domestic investors within the same period.

October edition of the Nigerian Exchange (NGX) report on domestic and foreign portfolio participation in equities trading in the first 10 months of 2022 showed that total equities market transactions increased year-to-date (YTD) as of October 30, 2022, by 34.59 per cent to N2.079 trillion with local investors’ patronage surpassing those by foreign investors.

The domestic investors pulled transactions of N1.73 trillion, representing 83.19 per cent in the first 10 months of the year, while foreign investors transacted total equities worth N349.59 billion, representing 16.81 per cent.

Reviewing the market performance in 2022, the Managing Director of APT Securities and Funds Limited, Garba Kurfi, said the market closed the year positive with more highly capitalised stocks recording improved capital appreciation.

“Among the factors that contributed to this is that most of the major capitalised stocks like Airtel Africa, MTN Nigeria, Dangote Cement and BUA Cement, which control over 70 per cent of the total market capitalisation gained about 50 per cent during the period under review and qualified to be invested in by the PFAs, which they did,” he said.

Managing Director of ARM Securities Limited, Rotimi Olubi, said the improved participation by local investors in the market boosted performance in 2022.

He also stated that the positive earnings boosted investors’ confidence in the equities market, adding that improved participation by domestic players in the market was the major factor that shielded the NGX from negative sentiments seen in the global equities market due to the Russia-Ukraine conflict.

Chief Executive Officer Wyoming Capital and Partners, Tajudeen Olayinka, identified improved liquidity in the system for the positive performance of the Nigerian stock market, adding that the crash in the crypto market brought liquidity back to the equities market.

According to him, other factors driving liquidity in the equities market are instant payment of dividends to shareholders through electronic means (e-dividend), which provides opportunities for immediate reinvestment of these dividends, especially by institutional investors, who manage funds and portfolios for clients.

“This did not leave out other traditional investors, who took advantage of low prices, in the run-up to financial year-end rallies that we saw at the beginning of the year 2022,” he said.

To sustain the trend in 2023, the President of Issuers and Investors Alternative Dispute Resolution Initiative (IIADRI), Moses Igbrude urged the Federal Government to implement appropriate legislation that will help tackle insecurity and other macroeconomic challenges this year.

According to him, key issues that could spur activities, stimulate investment and propel a boom in the market in the new year include a downward review of the Monetary Policy Rate (MPR), policy stability, stable foreign exchange policy and implementation of appropriate legislation that would compel major enterprises to be listed to deepen the market.

He said: “I am appealing to the Federal Government to prioritise capital market issues because it is the barometer to measure the prosperity of any economy.

“Government should provide the necessary support through good policies that can impact the economy, enhance infrastructure development, improve power supply and eliminate port congestion by opening up other ports in other parts of the country.

Additionally, he stressed the need for the government to review tax laws and harmonise all taxes payable in the nation’s capital market.

Recall that the Nigerian equities market was broadly positive at the beginning of the year owing to a combination of positive 2021 full-year corporate earnings and dividend declarations.

In addition, the accommodative interest rate environment provided room for buying interest amid low yields on fixed-income instruments.

Furthermore, some notable events in the year supported the market rally in H1, 2022. The year started with BUA Foods Plc listing a total of 18 billion shares at N40 per share on the mainboard of the Exchange.

Also, Dangote Cement Plc successfully executed the second tranche of its Share buy-back program in January. Furthermore, the CBN’s approval of Payment Service Bank licenses for the two listed telecommunication players; MTN Nigeria Communications and Airtel Africa spurred a positive market reaction. Among other major events.

NGX data showed that total foreign inflows for the 2022 full year, as of October closed at N178.21 billion, against total outflows of N171.38 billion, translating to a net inflow of NGN6.83 billion in the period.

Analysts cited the sustained FX liquidity challenges and a lack of flexibility in the FX framework as the main drivers of the low participation of foreign investors amid rising interest rates in advanced economies.

They noted that foreign investors’ share of the total transactions on the NGX fell to a new low of 7.5 per cent in May 2022; the lowest level since the NGX began compiling the current data series.

Analysts at Cordros Securities Limited said: “The equities market’s performance was mixed. A combination of significantly positive earnings with its associated dividend declarations, an accommodative monetary policy stance, and sustained FPI interest in fungible stocks underpinned the stellar H1, 2022 performance on the domestic bourse.

“However, the story turned sour in the year’s second half, as investors rebalanced portfolios following the uptick in fixed income yields and a shortfall in liquidity, given the deliberate actions by the monetary authorities to hike interest rates. It is pertinent to note that the impact of electioneering activities on the equities market was less pronounced than in previous pre-election years.”

Chairman of the Association of Securities Dealing Houses of Nigeria (ASHON), Sam Onukwue said: “The NGX maintained its positive momentum in the first nine months of 2022, gaining N4.15 trillion to outshine global markets that have witnessed severe volatility. The Nigerian ASI closed the first half of 2022 with a gain of about 21.2 per cent year to date (YTD) making it one of the best-performing stock markets in the world.”

“Investors in the Nigerian stock market have witnessed double-digit inflation, scarcity of foreign exchange, uncertainty in global economies, and of course, a hike in the Monetary Policy Rate (MPR) to 15.5 per cent, saying investors in the stock market reacted to Central Bank of Nigeria’s (CBN) hike in MPR, leading to the aggressive movement of investors to the fixed income market that comes with low-risk investment and modest yield.

“Investors reacted sharply to three quick successions in MPR hike, beginning with 13 per cent in May, 14 per cent in July, and 15.5 per cent in September. September 2022 was quite spectacular because investors exercised extreme caution by holding back further investment in equities, in reaction to the aggressive rise in inflation (20.52 per cent) in August 2022. This decline was due to the continued rise in fixed income rates due to the persistent hike in MPR,” Onukwue noted.


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