Nigeria Equities Transactions Rise amid FPI Outflows in Q1 2020

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Lagos Commissioner of Police, Hakeem Odumosu (C), speaks to passengers to enforce social distancing in a bus as part of measures to curb the spread of the COVID-19 coronavirus in Lagos, Nigeria on March 26, 2020. - Nigeria's government on March 26, 2020 warned that Africa's most populous nation could soon see an exponential increase in COVID-19 coronavirus infections unless contacts of confirmed cases are tracked down quicker. The country of around 190 million people has so far recorded just 51 infections and 1 death, but testing has been limited. (Photo by PIUS UTOMI EKPEI / AFP)

As 82.9M Nigerians Remain in Poverty…

Freshly released report by the Nigerian Stock Exchange (NSE) on domestic and foreign portfolio participation in equities trading showed that total equities market transactions increased in Q1 2020 compared to transactions done in the corresponding period of 2019.

The ratio of total domestic transactions to total foreign transactions tilted to 60:40 in Q1 2020, from 47:53 in Q1 2019, given the 89.01% increase in total domestic transactions as compared with the
marginal 13.52% rise in total foreign portfolio transactions.

Specifically, total transactions on
the nation’s bourse increased to N626.87 billion in Q1 2020 (from N420.26 billion printed in Q1 2019); of which total domestic transactions increased to N374.98 billion (from N198.39 billion) while FPI transactions rose to N251.87 billion (from N221.87 billion).

Breakdown of the FPI transactions in Q1 2020 showed that foreign portflio outflows increased by 50.19% to N186.60 billion; however, the foreign portfolio inflows dropped by 33.15% to N65.27 billion.

Domestic institutional transactions spiked year on year by 102.94% to N203.53 billion in Q1 2020.

Also, retail investors’ interest in equities market were stimulated by lower share prices (as transactions from this group rose sharply to N171.45 billion in the quarter under review from N98.10 billion in Q1 2019).

Amid significant sell-offs, particularly by the foreign portfolio investors, the NSE All Share Index (ASI) plummeted by 20.65% to 21,300.47 index points in Q1 2020 (compared to a 1.24% decline to 31,041.42 index points in Q1 2019).

The sharp decline in fixed income yields, especially treasury bills stop rates which dropped for all the three maturities (91-day, 182-day and 364-day stop rates fell to 2.20%, 3.20% and 4.30% in March 31, 2020 from 3.00%, 4.00% and 5.7% in February 26, 2020, and 10.90%, 13.09% and 14.37% in March 31, 2019) suggest that investors opted for capital preservation amid COVID-19 pandemic.

Meanwhile, the recently released report by National Bureau of Statistics (NBS), titled “2019 Poverty and Inequality in Nigeria” showed that 40.1% of the Nigerian population was poor.

According to the report, the 40.1% of the total population which translates to 82.9 million Nigerians lived below national poverty line of N137,430 per person per annum.

The national poverty line which represents the minimum amount of consumption below which people are considered poor was determined by adding food poverty line (estimated by NBS to be N81,767 per person per annum) and cost of non-food basic needs.

Of all the states surveyed, Sokoto State printed the highest poverty rate of 87.73%, followed by Taraba State (87.72%), Jigawa State (87.02%), Ebonyi States (79.76%) and Adamawa States (75.41%). However, Lagos State, Delta State, Osun State and Ogun State printed 4.5%, 6.0%, 8.5% and 9.3% poverty rates respectively.

Also, the report showed the distinction between those who were just a little below the poverty line and those who were significantly below the poverty line by determining the poverty gap index which measured the depth of poverty.

Accordingly, the result revealed that 82.9 million poor Nigerians fell below poverty line by 12.9%.

We expect the local equities market index to remain bearish even in the second quarter of the year as FPIs trade cautiously amid negative effect of COVID-19.

Meanwhile, the need for the federal and states governments to increase their investments in education cannot be overemphasized as the skill sets needed to take Nigeria to, and beyond, the industrial age must be acquired.

Hence, we expect government to boost spending towards improving human capital, even as it is currently doing on physical infrastructure, in order to reduce the high rate of poverty and inequality in the country via industrialization which creates more employment opportunities for citizens.

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