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Domestic investors reduce holdings by 71.6%

By on June 9, 2014

Domestic investors reduced their holdings in the Nigerian stock market by 71.6 per cent between 2007 and 2013, investigation by our correspondent has shown.

Since the global economic meltdown in 2008, local investors in the Nigerian capital market have been showing growing dissatisfaction with market activities as their patronage has reduced significantly.

This, analysts said, was because a lot of investors had their fingers burnt as a result of the losses incurred in their investments.

Findings by Sunday Punch revealed that within the last six years, specifically between 2007, the year before the meltdown and the end of 2013, there was a sharp decline in domestic transactions on the exchange.

As of 2007, domestic transactions on the Nigerian Stock Exchange stood at N3.556tn, representing 85.2 per cent of the total transactions recorded that year, but reduced significantly to N1.009tn in 2013, representing 49.2 per cent of the transactions in the year.

The total drop in domestic investments in the six-year period represented a sharp decline of 71.6 per cent.

Conversely, total foreign transactions of N616bn which accounted for 14.8 per cent of total transactions in 2007 consistently increased over the years to N1.042tn, representing 50.8 per cent of the total transactions recorded in 2013.

This marked an increase of 69 per cent over the six-year period.

Figures released by the NSE showed that domestic investors failed to match their foreign counterparts in the first quarter of the year as local investments dropped by N56bn.

The investments by local investors, which stood at N92.3bn at the beginning of the year, fell by N56.01bn or 61 per cent to N36.29bn at the end of the first quarter.

On the other hand, investments by foreign and institutional investors were on the increase in the period under consideration, as they rose from 89.67bn to N130.55bn in the same period, representing an increase of N40.88bn or 46 per cent.

Of this amount, a total foreign inflow for the period under review stood at N55.13bn, while the foreign outflow was N75.42bn.

Market analysts explained that the reason for this was because there had been increasing focus by the regulators of the exchange on attracting more foreign investors into the market, thereby concentrating less on the local investors.

The Chairman, National Association of Securities Dealers Limited, Mr. Tola Mobulurin, said when foreign investors were predominant players in a market, it showed some level of weakness in local activities.

He said, “The market must be willing to be open to foreign ownership at a very high degree and without any form of restriction. This is to allow for ease of capital inflows and outflows. Nigeria in this regard can be adjudged as good as any country, as foreign investors have accounted for as high as 70 per cent of the transactions in the market from 2009 to date with little hindrance.

“Nevertheless, the domination of the market by foreign investors underscores the weakness of the domestic market. Nigeria cannot attain leadership without a significant contribution of the domestic investors, whether institutional, high net worth or retail.”

The Chief Executive Officer, Proshare Nigeria Limited, Mr. Olufemi Awoyemi, said a lot of reasons could have accounted for the seeming reduction in investments of local investors.

He said, “Between October 2013 and mid-January 2014, huge money chased penny stocks which further confirmed the speculative trading; and by the nature of penny stocks, they are not the type of stocks you can buy and go to sleep. They are really meant for speculative trading in the Nigerian market.”

According to Awoyemi, the huge sell was largely attributed to the significant rise in speculative tendency.

 

 

[Punch]