Nigeria: Domestic Investors Dominate As Stock Market Attracts N756 Billion

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The Nigerian equities market attracted a total of N755.54 billion between January and April 2020, showing an increase of 32.7 per cent compared with N569.16 billion invested in the market in the corresponding period of 2019.

The trading numbers obtained from the Nigerian Stock Exchange (NSE) showed that domestic investors dominated the transactions in the first four months of the year, accounting for N450.48 billion or 59.6 per cent. On the other hand, foreign investors recorded N305.05 billion or 40.4 per cent.

A monthly analysis of the transactions showed that the market recorded N235.46 billion in January, with domestic investors accounting for N165.14 billion or 70.1 per cent, while foreign investors traded N70.32 billion or 29.86 per cent.

In February, investors executed trades worth N148.50 billion and domestic investors dominated with N77.16 billion or 51.9 per cent, while foreign investors accounted for N71.34 billion or 48.0 per cent.

The value of trading increased to N242.91 billion in March still led by domestic investors who accounted for N132.69 billion or 54.6 per cent. Foreign investors, however, traded N110.22 billion or 45.4 per cent.

But the figures went down in April as investors traded N128.67 billion with domestic investors, maintaining the lead, recording N75.49 billion or 58.67 per cent compared with foreign investors that transacted N53.18 billion or 41.33 per cent.

Further analysis of the trading numbers showed that the value of domestic transactions executed by retail investors outperformed institutional investors by eight per cent.

However, a comparison of domestic transactions in April and March 2020, revealed that retail transactions decreased by 32.89 per cent from N60.23 billion in March 2020 to N40.42 billion in April 2020. Similarly, the institutional composition of the domestic market decreased by 51.6 per cent from N72.46 billion in March 2020 to N35.07 billion in April 2020.

Market analysts said this was the period of lockdown as a result of the COVID-19 pandemic that is still impacting the nation’s economy negatively.

NSE Divisional Head, Trading Business, Mr. Jude Chiemeka, had last year expressed worries over the low level of domestic investors’ participation in the market; the exchange had to develop strategies to encourage more investors.

“There are about three million retail investors in the Nigerian capital market, representing only three per cent of the total adult population in the country. The exchange recognises the need to improve investor participation, and is leveraging recent capital market initiatives such as the know your customers (KYC) requirements for capital market investments, as well as promoting the introduction of globally competitive investment products with low entry thresholds, to achieve financial inclusion goals,” Chiemeka said.
On how to further encourage more domestic investors to play in the equities market, the Group Chief Executive Officer, United Capital Plc, Mr. Peter Ashade, had said policies must be put in place to grow disposable income (lift people out of poverty and improve gross national income).

“Moreso, there is a need to increase the penetration of financial literacy and instill investor’s confidence in the financial markets. It is interesting to note that the attitude of Nigerians towards investing in collective investment scheme has greatly improved in the past few years.

“This is seen in the growth of the Net Asset Value of mutual funds, which had grown by a whopping 330 per cent to about N1.2 trillion between 2016 and now. Clearly, there is still room for improvement and growth, as the total investment remains below 1.0 per cent of the country’s nominal gross domestic product (GDP),” he said.

Ashade explained that the major factors underlying modest interest in investing in mutual funds remain the low level of investor education, the question of trust, and the quick money mentality that dominates the mindset of the uninformed investors.

“Despite the high incidence of poverty rate in Nigeria, individuals that can afford to save and invest are often not aware of the available investment opportunities or do not trust the system, especially as they might have fallen prey to fraudulent money doubling schemes.

“The best way to improve this is to promote financial literacy and educate the populace on the advantage of investing and the way they can reap the benefits through investing in mutual funds.

“Additionally, to solve the problem of lack of trust, the investment management firms must be very open with their operations and inform investors that they are regulated by Securities and Exchange Commission (SEC),” he said.

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