Friday, December 3, 2021

    Domestic Institutional Investors Position in Equities Market Despite High Fixed Income Yield…

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    Freshly released report by the Nigerian
    Exchange (NGX) on domestic and foreign
    portfolio participation in equities trading showed that total equities market transactions decreased in April 2021 compared to the volume of transactions done in March 2021 despite increased participation by domestic institutional investors.

    The increased participation by the domestic institutional investors was in
    consonance with our expectation expressed in the Cowry Weekly Financial Market Review dated May 14, 2021, that “we should begin to see some strategic positioning in stocks with high dividend yield despite the rising fixed income yield environment”.

    Given the increased involvement of the domestic players on the Nigerian Exchange, especially the domestic institutional investors, the ratio of total domestic transactions to total foreign transactions tilted to 83:17 in the month under review, from 82:18 in March 2021 as total domestic transactions contracted by 29.78% while total foreign portfolio transactions contracted by 31.05%.

    Specifically, total transactions on the Lagos bourse moderated to N159.93 billion in April 2021 (from N228.49 billion printed in March 2021); of which total domestic transactions decreased to N131.91 billion (from N187.85 billion).

    Also, FPI transactions fell to N28.02 billion (from N40.64 billion).

    A breakdown of the FPI transactions in April 2021 showed that foreign portflio inflows contracted by 10.61% to N18.20 billion; also, foreign portfolio outflows plummeted by 52.83% to N9.82 billion.

    Retail investors significantly reduced their stake in the equities market (transactions from this group dropped to N36.50 billion in the month under review from N108.55 billion in March 2021).

    However, domestic institutional transactions increased year on year by 20.32% to N95.41 billion in April 2021.

    Amid bargain hunting activities, chiefly by the domestic institutional investors, as well as the reduction in sell-offs from the foreign portfolio investors, the NSE All Share Index (ASI) gained 2.02% to 39,834.42 index points to close for the month of April 2021.

    In another development, the Organisation of the Petroleum Exporting Countries (OPEC) having concluded its 17th OPEC and Non-OPEC Ministerial Meeting in the course of the week projected that global demand for crude oil would improve going forward.

    The oil cartel consisting of 13 of the world’s major oil- exporting nations noted that the market fundamentals continued to strengthen amid economic recovery in more countries as vaccination programmes accelerate.

    Also, it mentioned that overall conformity to the production adjustments by the participating countries was 114% in April 2021.

    Given the positive outlook, the crude oil prices at the international market rallied.

    Particularly, the Brent crude price rose by 3.05% w-o-w to USD71.31 a barrel.

    Also, West Texas Intermediate (WTI) crude and Nigeria’s crude grade (Bonny Light) increased by 2.93% and 2.96% to USD68.81 and USD70.02 per barrel respectively as at June 3, 2021.

    The local bourse index printed a 2.02% as domestic institutional investors participated more in the equities market despite the rising fixed income yield environment.

    Also boosting the domestic bourse index performance was the improved partcipation by foreign portfolio investors, and the significant reduction in foreign outflow.

    We note that more of the funds were expended on relatively high dividend yielding stocks, especially those in the banking sector.

    Going forward, we expect to see more funds flow into this space as corporates get ready to release their half year financial results, some of which would reward their shareholders interim cash dividends.

    Nevertheless, we advise investors to cherry-pick stocks that have consistently paid dividends and increased their profit after tax – particularly from their major income lines.

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