BY FESTUS OKOROMADU, ABUJA
The data polled from the Nigerian Exchange Limited on domestic and foreign portfolio trading in the month of August 2023 showed that the market witnessed a striking downturn in total trading activity.
Trading figures plummeted by a staggering 62.65 percent to N262.56 billion, down from July’s robust N702.98 billion translating to a loss of N440.42 billion during the month.
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 percent 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 percent.
Further interrogation of the monthly data shows that domestic transactions bore the brunt of the downturn, plummeting by 65.97 percent 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 of Nigeria 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 percent, 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 percent margin.
In particular, retail transactions dwindled by 57.76 percent, 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 percent 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 percent decrease from N3.556 trillion in 2007 to N1.945 trillion in 2022.
In the same vein, foreign transactions displayed a downward trend, declining by 38.47 percent from N616 billion to N379 billion over the same period.
Oddly, domestic transactions dominated the market in 2022, accounting for approximately 84 percent of the total transactions, leaving foreign transactions with a mere 16 percent 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.
Experts have attributed the negative sentiment in the local bourse to economic uncertainties, including currency fluctuations and inflation, insisting that government policies have introduced an element of unpredictability.
But 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 percent.
This shift can be attributed to a change in sentiment driven by macroeconomic factors and government policy reforms.
