FX Worries, Risk Profile of Key Investors to Keep Equity Market Tight

FX Worries, Risk Profile of Key Investors to Keep Equity Market Tight

Equity analysts at CSL Stockbrokers Limited said there will be no significant change in the direction of the equities market owing to several factors including dollar shortage and risk-averse profile of the domestic investors.

In the recently released Nigerian Exchange (NGX) domestic and foreign portfolio investment report for June, total value traded grew 3.7% month on month to N100.8 billion or $244.9 million in June from N97.2 billion or $236.3 million in May 2021.

However, it was noted that the activity level among domestic investors grew 0.6% to N77.4 billion or $188.0 million in June 2021 supported by transactions from retail investors.

In the period, transactions from retail investors had jerked up 9.5% above May 2021 record to N36.1 billion or $87.6 million while transactions from institutional investors dipped 6.1% to N41.3 billion or $100.3 million in the same period.

On the other hand, foreign investor participation in the local bourse increased, up 15.4% month on month to N23.4 billion or $56.9 million from N20.3 billion or $49.3 million.

Nevertheless, analysts stated that domestic investors maintained dominance of the local bourse as their share of total transactions in June was 76.8% (YTD; 78.5%) while that of foreign investors was 23.2% (YTD; 21.5%).

On the domestic front, CSL Stockbrokers added that despite the lull in performance by the institutional investors, they still dominated activities, with transactions worth N41.3 billion or $100.3 million while retail investors executed transactions worth N36.1 billion or $87.6 million.

The report showed that foreign inflows grew to N13.9 billion in June 2021 compared with foreign outflows of N9.5 billion or $23.1 million in the same period, resulting in a net inflow of N4.4 billion (US$10.7m) as against a net inflow of N5.7 billion (US$13.9m) in May 2021.

“The higher outflows relative to inflows may indicate that foreign investors have been able to move some of their funds out of the market”.

In its projection for the market, analysts at CSL Stockbrokers said looking ahead, they expect no significant change in the direction of the equities market owing to several factors.

Firstly, the investment firm maintains that domestic investors who currently dominate the market are highly risk-averse finding risk free naira assets more attractive, thus limiting increased flows to the local bourse.

It also added that the foreign exchange (FX) constraints have sustained foreign investors’ apathy towards the Nigerian market despite the cheap valuations.

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However, in the near term, analysts said the release of favourable earnings from the sector bellwethers and payments of interim dividends are likely to propel buying activities but the impact will likely be short-lived.

FX Worries, Risk Profile of Key Investors to Keep Equity Market Tight

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