This week, we take a cursory look into the activities of portfolio investors through equities on the Nigerian
stock exchanges. The data polled from the NGX on domestic and foreign portfolio trading in the month of
August 2023 showed that the market witnessed a striking downturn in total trading activity, with figures
plummeting by a staggering 62.65% to N262.56 billion, down from July’s robust N702.98 billion. This abrupt
dip in market performance raised eyebrows across the financial sector.
Comparing August 2023 to the same month in the previous year, however, a remarkable surge of 111.79% was
recorded as the total transaction value in August 2023 stood tall at N262.56 billion, in stark contrast to the
more modest N123.97 billion seen in August 2022. Notably, domestic investors flexed their muscles in August
2023, commanding a significant lead over their foreign counterparts, dominating the market by a substantial
72%.
Delving further into the monthly data, it became apparent that domestic transactions bore the brunt of the
downturn, plummeting by 65.97% from July 2023’s robust N662.44 billion to N225.40 billion in August 2023.
This could be attributed to the effect of the foreign exchange harmonization by the central bank which
saw a translation of the exchange rate above N700 from the previous band which was between N435 and N467
per dollar. In parallel, foreign transactions saw a more moderate decline of 8.34%, settling at N37.16 billion in
August, compared to N40.54 billion in July 2023.
A closer examination of investor types revealed that institutional investors outpaced retail investors by a notable
14% margin. In particular, retail transactions dwindled by 57.76%, sliding from N229.95 billion in July to
N97.13 billion in August 2023. Meanwhile, institutional investments also contracted, albeit by a greater extent,
plunging by 70.34% from N432.49 billion in July 2023 to N128.27 billion in August 2023.
Zooming out to a broader perspective, a long-term view spanning sixteen years painted a picture of decline in
both domestic and foreign transactions. Domestic transactions witnessed a notable 45.30% decrease from
N3.556 trillion in 2007 to N1.945 trillion in 2022. In the same way, foreign transactions displayed a downward
trend, declining by 38.47% from N616 billion to N379 billion over the same period.
Oddly, domestic transactions dominated the market in 2022, accounting for approximately 84% of the total transactions, leaving foreign transactions with a mere 16% share. Current data for 2023 suggests that total domestic transactions hover around N2.194 trillion, whereas total foreign transactions stand at roughly N222.78 billion
Negative sentiment in the local bourse has arisen due to economic uncertainties, including currency fluctuations
and inflation, while government policies have introduced an element of unpredictability.
Despite these challenges, foreign investors appear to be reevaluating the Nigerian market’s potential, emphasizing the need for a nuanced understanding of the factors influencing market dynamics.
Meanwhile, the recent surge in foreign investor activity in the Nigerian stock market stands in contrast to the pre-COVID-19 era when their market share was below 25%. This shift can be attributed to a change in sentiment driven by macroeconomic factors and government policy reforms.
