Retail Investors Exit from Stock Market Halts Uptrend
Retail investors’ exit from the Nigerian Exchange (NGX) has been spotted to be driving massive stock depreciation recorded in the stock market in the past weeks.
The Nigerian stock market plunged below N20 trillion due to profit-taking activities as Pension Fund Administrators shift their risk appetite towards fixed income securities amidst yield repricing.
Citing data from NGX, CSL Stockbrokers said the total value of transactions executed at the local bourse declined by 30.0% month on month to N159.9bn or US$389.8 million in April from N228.5 billion or US$560.6 million in March.
Breakdown of the data revealed that the dip in total transaction value was largely on the back of a significant decrease in transactions executed by domestic retail investors, down 66.4% month on month to N36.5 billion or US$89.0 million, it added.
Nevertheless, analysts at CSL explained that domestic investors still retained dominance of trading activities on the local bourse as their share of total transactions in April stood at 82.5% (year to date; 78.7%) while foreign investors’ share of total transactions was 17.5% (year to date; 21.3%).
On domestic flows, transactions were dominated by institutional investors. Previously, it was retail investors that drive performance in the prior month.
According to the report, institutional investors traded N95.4 billion (US$232.6m) while retail investors traded transactions worth N36.5 billion (US$89.0m).
“We note that the reduced participation by retail investors caused a decline in activity level among domestic investors, down 29.7% m/m to N131.9 billion (US$321.5m)”, CSL Stockbrokers said.
The firm also expressed the view that the intensified selloffs by retail investors were on the hunt for rising yields despite the release of impressive Q1-2021 results by sector bellwethers.
Data showed that foreign outflows decreased to N9.8 billion (US$23.9m) in April from N20.3 billion (US$49.8m) in March. Similarly, foreign inflows declined to N18.2 billion (US$44.4m) in April from N20.4 billion (US$49.9m) in March.
Analysts said this led to a net inflow of N8.4 billion (Us$20.4m) in April when compared with the net inflow of N0.1 billion (US$0.2m) in March and marking the second consecutive growth in net inflows.
“The decision by the MPC to maintain the status quo, which means there will be little or no fundamental changes in the direction of the equities market in our view.
“We expect investors to continue to invest in only fundamentally strong, high dividend-paying stocks. Also, we expect the constrained liquidity in the financial system to continue to drag performance in the local bourse”, CSL Stockbroker remarked.
Meanwhile, analysts noted that the recent move by the CBN to adopt the Nigerian Autonomous Foreign Exchange (NAFEX) window rate as the new official exchange rate tempers the currency risk, which had hitherto hampered the foreign inflow of capital.
“Following the recent strain in FX inflows, the need to provide stability and assurance in the Nigerian FX space has become pertinent”.
CSL Stockbrokers confirmed that foreign portfolio investors have had difficulty repatriating their funds in the last sixteen (16) months, making FX clarity top among factors that would drive renewed interest from FPIs.
Retail Investors Exit from Stock Market Halts Uptrend
