September 27, 2021/CSL Research

In August 2021, weak sentiments persisted. Based on the recently released Domestic and Foreign Portfolio Investment (FPI) report by the Nigerian Exchange Limited (NGX). Total activity level was down 0.4% m/m to N89.4bn (US$217.5m) in August from N89.8bn (US$218.2m) in July 2021. The marginal decline in value traded was driven by reduced activities among domestic investors, down 13.7% m/m to N64.1bn (US$155.8m) while foreign investors increased their participation level in the market as foreign transactions grew 63.3% m/m to N25.4bn (US$61.7m), breaking a 3-month consecutive decline. Meanwhile, the All-Share Index (ASI) YTD loss moderated to 2.6% in August from 4.3% in July 2021, which we believe was reflective of the release of favourable earnings and announcements of interim dividends by some sector bellwethers, which propelled buying activities in the local bourse.

Amongst domestic investors, transaction value by institutional and retail investors declined 12.2% m/m to N32.2bn (US$78.3m) and 15.2% m/m to N31.9bn (US$77.6m), respectively. Notably, this was the lowest activity level executed by the institutional and retail investors since September 2020. Despite the cheap-looking stocks, investors are shunning the opportunity, tilting more towards Naira risk-free assets. On the other hand, foreign outflows increased, up 82.3% m/m to N14.6bn (US$35.6m) and foreign inflows also rose, up 42.9% m/m to N10.7bn (US$26.1m). Overall, the net outflows widened to N3.9bn (US$9.5m) in August from N0.5bn (US$1.2m) in July 2021.

The local bourse saw increased flows in Q1 2021, but resurgence in fixed income yields led to a reversal in Q2 and Q3 2021. For foreign investors, illiquidity in the FX market remains a major deterrent. There is some level of optimism that the receipts of US$4bn from the Eurobond issuance may help the CBN clear existing FX backlogs, providing a basic impetus for inflows. However, considering CBN’s many FX obligations, it remains uncertain how much of the available FX the apex bank will be willing to extend for that purpose.