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Domestic transactions in stock market rise by N88.87bn

By on June 10, 2015

Transactions by domestic investors in the equities segment of the Nigerian Stock Exchange rose by 37.55 per cent or N88.87bn in the first four months of this year when compared to the same period of 2014, a review of data from the Exchange showed.

Between January 1 and April 30, 2015, domestic equity transactions on the Exchange amounted to N325.52bn, compared with N236.65bn in the first four months of 2014.

In January, domestic transactions in stocks had stood at N90.61bn. It, however, declined in February to N50.54bn before picking up in March at N81.46bn and surging to N102.91bn in April.

The Head, Research and Investment Advisory, Sterling Capital Markets Limited, Mr. Sewa Wusu, explained that the rise in domestic participation could be attributed to increased confidence in the market on the part of domestic investors.

He said, “You will recall that immediately after the presidential election, there was a spike in the market. That was as a result of increased confidence, because the political risk that was heightened hitherto subsided and the market reacted accordingly.

“So, we saw huge volumes; we saw participation on the increase by virtue of the clear political risk, which did not crystallise.”

Wusu added that the successful conduct of the election, which eliminated the political risk, gave impetus to investors.

“Don’t forget that even the prices of equities were also down then; so, most domestic participants saw investment opportunities to take advantage of during the period,” he said.

In contrast, transactions by foreign portfolio investors declined within the period as many of them had exited the market in the second half of 2014 and the first quarter of this year due to concerns about the political and economic risks in the country.

The total equity transactions by foreign portfolio investors in the first four months of the year was N439.57bn, 11.25 per cent or N55.72bn lower than the N495.29bn at which it stood in the corresponding period of 2014.

Foreign investors, however, dominate transactions year-to-date, accounting for 57.45 per cent of total transactions, while domestic investors account for 42.55 per cent.

The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, explained that the exit of the foreign investors also influenced the increase in domestic participation in the equities market.

He said, “One factor responsible for the rise is that the pool of funds available to domestic institutional investors has increased over time. If you recall, the Pension Fund Administrators have total assets of about N4.6tn; that is a material increase over what it was last year.

“And the major outlet for investing the fund is fixed income assets; that is, government bonds and state bonds; however, the PFAs are not very active in state bonds because there is a restriction of investment in state bonds; and then, investment in equities. So, you see a lot more local fund managers putting money in the equities market.

“The second factor is that the proportionate increase in local investors’ share of market activities is also influenced by the fact that foreign portfolio investors have actually wound down their investments in the market as a result of heightened political risk in the first quarter of this year.”

The development, he said, pushed down the prices of the equities to bargain hunting levels.

“So, the prices became too attractive to local investors and they took advantage of that,” Chukwu said.

Asked whether the trend would be sustained, he said the policies of the All Progressives Congress-led Federal Government would determine the future.

 

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