The Nigerian Stock Exchange (NGX) witnessed a modest increase in overall activity in May 2024, according to the latest Domestic and Foreign Portfolio Investment report. The total value of transactions reached N355.38 billion ($230.73 million), reflecting a 2.63% increase compared to N346.23 billion ($224.78 million) recorded in April 2024.
This growth comes amidst a backdrop of a relatively stable Nigerian equity market. Looking at year-over-year trends, total transactions in May 2024 displayed a 10% increase compared to the N322.92 billion recorded in May 2023. This suggests a potential return of investor confidence in the Nigerian market.
Domestic Investors Drive Market Activity
A key driver of the market’s uptick was a surge in domestic investor participation. In May 2024, domestic investors accounted for a significant portion of the market, contributing N231.10 billion ($155.93 million) in transactions. This figure surpassed foreign investor transactions (N124.28 billion, $80.69 million) by a substantial margin of 85.9%.
Interestingly, domestic transactions themselves experienced a modest increase of 2.52% compared to April 2024. This indicates a growing appetite for Nigerian equities among domestic investors.
Analysts suggest this trend could be attributed to several factors, including:
Increased awareness and education: Efforts by the NGX and financial institutions to educate Nigerians about the benefits of investing in the stock market may be yielding positive results.
Diversification strategies: Domestic investors might be seeking to diversify their portfolios and hedge against inflation by investing in equities.
Attractive valuations: Certain sectors of the Nigerian stock market might be offering attractive valuations, enticing domestic investors to enter the market.
Foreign Investors Remain Cautious
While domestic investor participation increased, foreign investor activity remained relatively flat. Foreign transactions in May 2024 reached N124.28 billion ($80.69 million), representing a marginal increase of 2.85% compared to April 2024. This suggests a cautious approach by foreign investors towards the Nigerian market.
Several factors could be contributing to this cautiousness, including:
Global economic uncertainties: The ongoing global economic slowdown and potential recessionary fears might be prompting foreign investors to adopt a risk-averse approach.
Currency fluctuations: The volatility of the Nigerian Naira could be a deterrent for foreign investors seeking stability in their investments.
Policy environment: Foreign investors might be waiting for clearer signals on certain government policies before committing significant capital to the Nigerian stock market.
Institutional Investors Take the Lead
Within the domestic investor category, institutional investors played a dominant role. In May 2024, institutional investors executed transactions worth N117.57 billion ($78.34 million), outperforming retail investors who contributed N113.53 billion ($75.39 million). This translates to a 3.56% advantage for institutional investors.
However, it’s worth noting that the institutional investor segment witnessed a slight decline in activity compared to April 2024. Institutional transactions dropped by 5.66% from N124.63 billion ($83.73 million) in April to N117.57 billion ($78.34 million) in May. This could be a temporary blip or might indicate a shift in institutional investor strategies.
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If You Ask Me
The Nigerian Stock Exchange’s May 2024 report paints a picture of a cautiously optimistic market. While domestic investor participation is a positive development, attracting more foreign capital remains a challenge. Continued efforts to address investor concerns regarding the global economic climate, currency stability, and policy clarity will be crucial to boosting foreign investment in the Nigerian equity market.
