Freshly released report by the Nigerian Stock Exchange (NSE) on domestic and foreign portfolio participation in equities trading showed that total equities market transactions decreased marginally in January 2021 compared to the volume of transactions done in January 2020.
This was chiefly due to the dragging foreign portfolio investors’ participation as Naira kept depreciating against the USD amid low interest rate environment – although, we are beginning to see upward movement in rates across
Nevertheless, domestic institutional investors were able to lift the local equities market performance as they pursued relatively better dividend yields.
Hence, the ratio of total domestic transactions to total foreign transactions tilted to 80:20 in the month under review, from 70:30 in January 2020, given the 11.99% increase in total domestic transactions as compared with the 32.42% decline in total foreign portfolio transactions.
Specifically, total transactions on the Lagos bourse increased to N232.46 billion in January 2021 (from N235.46 billion printed in January 2020); of which total domestic transactions increased to N184.94 billion (from N165.14 billion). However, FPI transactions decreased to N47.52 billion (from N70.32 billion).
A breakdown of the FPI transactions in January 2021 showed that foreign portflio inflows contracted by 29.76% to N16.73 billion; also, foreign portfolio outflows fell by 33.78% to N30.79 billion.
Retail investors reduced their stake in the equities market as they cashed out before dividend payment announcements (transactions from this group plummeted to N67.44 billion in the month under review from N81.67 billion in January 2020).
However, domestic institutional transactions spiked year on year by 40.77% to N117.50 billion in January 2021 to lift the local bourse index.
Amid bargain hunting activities, chiefly by the domestic institutional investors, the NSE All Share Index (ASI) rose by 5.32% to 42,412.66 index points to close for the month of January 2021.
In another development, the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, stated that Nigeria would sell crude oil to Dangote Refinery in Naira in order to strengthen the local currency against the greenback, hence reducing the demand for USD, even as the refined crude oil would be sold to Nigerians in Naira.
Meanwhile, crude oil prices continue to soar amid an OPEC+ decision to hold off on production increase.
Hence, the West Texas Intermediate (WTI) crude price rose by 3.71% w-o-w to USD65.83 a barrel given the 4.66% w-o-w rise in U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) to 484.61 million barrels. Also, Bonny Light and Brent Crude prices increased by 0.90% and 4.42% to USD66.12 and USD69.03 per barrel respectively as at March 4, 2021.
There has been a continuous decline in the US crude oil input to refineries as it fell by 19.03% w-o-w to 9.90 mb/d as at February 26, 2021 (It also dropped y-o-y by 42.07% from 15.69 mb/d as at February 28, 2020).
We refer to our Cowry Weekly Financial Markets Review and Outlook Report dated February 5, 2021, where we expressly stated that the rally in the equities market would mellow in the months of February and March 2021 amid rising fixed income yields.
In line with our expectations, the equities market lost all the gains (5.32%) in January 2021, and sharply moved into negative territory (6.16%) in February amid investors’ sell-offs.
Given our expectations in January, detailed in our Outlook and Investment Strategies in 2021 that interest rate would move northwards, we saw stop rates for 90-day, 182-day and 364-day rise sharply to 2%, 3.5% and 5.5% respectively in February 2021 from 0.035%, 0.5% and 1% respectively as at December 30, 2020.
Hence, we expect the local stock market index to remain in red zone in March 2021 as fixed income space becomes more attractive.