Foreign Portfolio Investors Slash Stake in Nigerian Equities Market in October 2019…

In the just concluded week, October inflation report released by National Bureau of Statistics showed that headline inflation rate rose to 11.61% year-on-year (from 11.24% in September 2019), a sharp increase, and the highest in 17 months.

The northward trend in annual inflation was chiefly due to the sustained increase in annual food inflation.

This was despite the gentle downturn in core inflation rate which has remained in single-digit. Specifically, annual food inflation rate jumped to 14.09% in October 2019 from 13.57% in September 2019.

Also, monthly food inflation rate climbed m-o-m to 1.33% in the month of October, from 1.30% in the month of September, amid sustained closure of Nigeria’s land borders.

On a state-by-state basis, October food inflation rate rose to 17.53% (from 15.80%), 17.00% (from 16.08%), 17.00% (from 13.85%) and 16.53% (from 15.39%) in Kebbi State, Ogun, Ondo and Lagos States respectively.

Imported food index rose by 1.27% m-o-m amid sustained depreciation of the Naira against the USD at the interbank window where two months moving average foreign exchange rate rose m-o-m by 0.04% to N358.09/USD in October 2019.

On the flip side, annual core inflation rate moderated to 8.88% y-o-y in October 2019 from 8.94% in September 2019 as clothing and footwear inflation rate fell marginally to 9.76% from 9.77%; although inflation rate for energy costs and transport rose by 0.20% and 0.10% respectively.

Similarly, we saw core inflation rate fall on a monthly basis to 0.74% (from 0.89% in September).

In another development, the Nigerian Stock Exchange (NSE) released its report on domestic and foreign portfolio participation in equities trading for the month of October 2019 and showed that equities market transactions increased when compared with the equities trades done in September 2019.

The FPI transactions in October 2019 showed that foreign portflio outflows rose by 41.01% to N65.88 billion; however, the foreign portfolio inflows decreased by 20.77% to N37.85 billion.

Total transactions on the nation’s bourse increased to N163.16 billion in October 2019 (from N141.45 bllion in September 2019); of which FPI transactions rose to N103.73 billion (from N94.45 billion) and total domestic transactions increased to N59.43 billion (from N47.00 billion).

Further breakdown of total domestic transactions showed that domestic institutional transactions surged by 74.28% to N41.20 billion in October 2019 from N23.64 billion recorded in September 2019.

However, retail investors shunned the equities market in October as transactions from this group moderated by 21.96% to N18.23 billion from N23.26 billion.

Following the decision of the foreign portfolio investors to reduce their stakes in the equities market, the total FPIs transactions to total local investors participation ratio tilted to “64:36” in October from “67:33” in September.

Hence, the NSE All Share Index (ASI) nosedived by 4.62% to 26,355.35 index points in October 31, 2019 (from 27,630.56 index points in September 2019).

Also, as the Foerign Portfolio investors offload banking, consumer goods, industrial as well as oil and gas stocks, their respective guages plunged by 8.92%, 8.96%, 4.38% and 2.31% to 313.30 points, 516.56 points, 1,035.85 points and 233.83 points respectively.

However, NSE Insurance index increased by 3.62% to close at 120.20 points. We expect the rise in annual inflation rate to be sustained in the coming months in 2019 as food prices increase amid border closure and year-end festive season.

Hence, we feel investors would seek higher rates on fixed income securities as real return sunk into negative territory.

In the interim, we expect investors to gravitate towards equities market given its cheap valuation. Expected dividend yield of some stocks such as Zenith, CAP and Conoil are currently above 10%.

More so, we commend the domestic institutional investors for taking the initiative to position in the equities market as the foreign portfolio investors offload some of their stocks.

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