Local Institutional Investors Lift Equities as FPIs Exit in Sept. 2020

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Recently released report by the Nigerian Stock Exchange (NSE) on domestic and foreign portfolio participation in equities trading showed that total equities market transactions increased
in September 2020 compared to transactions
done in the month of August as domestic
institutional investors lifted local equities market performance despite foreign portfolio investors’
exit.

Hence, the ratio of total domestic
transactions to total foreign transactions tilted to 70:30 in Sept 2020, from 59:41 in August 2020, given the 71.12% increase in total domestic transactions as compared with the marginal 2.74% rise in total foreign portfolio transactions.

Specifically, total transactions on the nation’s bourse increased to N134.97 billion in Sept. 2020 (from N94.45 billion printed in Aug. 2020); of which total domestic transactions increased to N94.92 billion (from N55.47 billion) while FPI transactions rose to N40.05 billion (from N38.98 billion).

Breakdown of the FPI transactions in Sept. 2020 showed that foreign portflio outflows increased by 22.19% to N26.05 billion; however, the foreign portfolio inflows dropped by 20.72% to N14.00 billion.

Notably, domestic institutional transactions spiked month on month by 105.23% to N59.23 billion in Sept. 2020 even as retail investors’ also increased their stake in the equities market given the lower share prices (transactions from this group rose to N35.69 billion in the month under review from N26.61 billion in August 2020).

Amid bargain hunting activities, particularly by the domestic institutional investors, the NSE All Share Index (ASI) jumped by 5.96% to 26,837.42 index points in Sept. 2020 (compared to a 2.57% rise to 25,327.13 index points in August 2020).

Domestic investors patronised the equities market more given the ridiculously low fixed income yields and the net matured Open Market Operations (OMO) bills in Sept. 2020 worth N1 trillion (N1.30 trillion matured via OMO as against N310 billion which was auctioned), more of which were not reinvested in OMO space given CBN’s policy which prevented assets managers and other high networth individuals from investing in the OMO space.

Meanwhile, crude oil prices at the international oil market took a downturn as most of the grades we track nosedived.

Specifically, WTI crude price moderated week-on-week (w-o-w) by 1.45% to USD40.64 a barrel amid a 4.06% w-o-w decline in US crude oil input to refineries to 13.03 mb/d as at October 16, 2020 (It has declined y-o-y by 17.90% from 15.87 mb/d as at October 18, 2019).

This was in spite of a further 0.20% w-o-w fall in U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) to 488.11 million barrels (inventories have rise by 12.69% y-o-y from 433.15 million barrels as at October 18, 2019).

Elsewhere, Brent price also tanked by 1.44% to USD42.53 a barrel as at Thursday, October 22, 2020; however, Bonny Light rose by 1.30 % to USD42.03 a barrel.

We feel that the rise in the equities index would be sustained going forward, especially for the month of October and November 2020, partly driven by N2.14 trillion worth of OMO bills expected to mature in those months.

However, we expect some moderation in share prices in the month of December 2020 as investors take profit on equity investments to take care of expenses ahead of the festive season.

As at October 2020, the domestic equities market index had printed a 6.43% gain.

Hence, we advise investors to watch out for buy opportunities in December and take position ahead of the corporate actions that would commence in the first quarter of 2021 amid relatively attractive dividend yields.

The equities market is currently bullish as share prices has moved upward, thus, by buying at the current prices new investors may be doing so at the risk of buying at relative high share prices which may impact negatively on investors capital if prices reverse in the short term.

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