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Rising yields on fixed income may lure investors away from Stock market in Q2~FSDH

By on May 5, 2021 0 143 Views

Analysts at FSDH review the Nigerian stock market in the first quarter and project that interest in local bourse in the second quarter will be muted as yields on fixed-income rise and liquidity becomes tight

Recently, the Nigerian Exchange Group (NGX) released the Domestic & Foreign Portfolio Investment Report for Mar-2021 to round up the final month in Q1-2021.

According to the report, total equity transactions on the local bourse grew 7.9 percent y/y to N676.5 billion in Q1-2021 from N626.9 billion in Q1-2020.

The growth in total transactions reflects sustained interest in Nigerian equities following extended bullish sentiments from Q4-2020 into Jan-2021.
Interestingly, the gap between foreign and domestic investors continued to widen in Q1-2021.

At the end of the quarter, domestic investors traded 77.8 percent (vs 59.8 percent in Q1-2020) of total equities transaction value compared to just 22.2 percent (vs. 40.2 percent in Q1-2020) for foreign portfolio investors.

In absolute terms, foreign investors traded a record low N150.2 billion during the quarter, declining 40.4 percent y/y from Q1-2020’s N251.9 billion.

On the other hand, their domestic counterparts traded N526.3 billion, growing by 40.4 percent y/y from Q1-2020’s N375.0 billion. The steep decline in foreign investor participation in Nigerian equities market has been driven by sustained FX concerns which has limited foreign interest in Nigerian equities.

While, domestic interest has surged on the back of investors buying for dividend purposes as well as increased liquidity in the hands of domestic players following the accommodative monetary policy stance by the CBN in 2020.

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Looking ahead, we expect equity transactions to be muted as a result of tighter liquidity and growing interest in the fixed income market as yields continue to reprice higher.

In addition, we expect foreign investor participation to remain weak as the FX situation continues to remain bleak amidst limited intervention by the CBN in the I&E window.

Thus, we think domestic investors will continue to direct the pace of transactions in the Nigerian equities market.

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