June 28, 2021/CSL Research

In the recently released NGX Domestic & Foreign Portfolio Investment Report for May 2021, total value traded declined for the second consecutive month as the activity level dipped by 39.2% m/m to N97.2bn (US$236.3m) from N159.9bn (US$389.8m) in April. The decline in value traded was driven by reduced activities among foreign and domestic investors, with the most significant hit from domestic institutional investors, down 53.9% m/m to N44.0bn (US$106.9m) in May 2021. However, domestic investors retained dominance of trading activities on the local bourse as their share of total transactions in May stood at 79.1% (YTD; 78.7%) while foreign investors’ share was 20.9% (YTD; 21.3%).

Domestic market activities were dominated by institutional investors, executing transactions worth N44.0bn (US$106.9m) while retail investors traded N32.9bn (US$80.1m). The decline in activity level among domestic investors (down 41.7% m/m to N76.9bn (US$187.0m) was on the back of reduced participation by retail and institutional investors. In our view, the weak domestic sentiment can closely be linked to the dual impact of rising fixed income yield and strained system liquidity.

On the flip side, foreign participation remained low, as FX restrictions and measures on FX repatriation continued to undermine investor confidence and prevent the free flow of capital. As a result, foreign inflows decreased 28.5% m/m to N13.0bn (US$31.6m) in May from N18.2bn (US$44.4m) in April. In the same vein, foreign outflows declined 25.9% m/m to N7.3bn (US$17.7m) in May from N9.8bn (US$23.9m) in April. This led to a net inflow of N5.7bn (US$13.9m) in May.

Looking ahead, we expect the release of favourable Q2 & H1 2021 results and interim dividends from fundamentally sound stocks to drive a marginal improvement in domestic activity levels. We expect foreign investors to remain apathetic and more selloffs as CBN gradually clears the backlog of unmet FX demands by FPIs.

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