Nigerian Stock Exchange (NSE) data on domestic and foreign investor participation for November revealed that foreign investors’ outflows from Nigerian equities outpaced inflows for the second consecutive month. The higher decline in Foreign outflows (down 19.3% m/m to N53.2bn) when compared to the reduction in Foreign inflows (down 11.3% m/m to N33.6bn) led to lower net outflows (N19.6bn in November compared to N28.0bn in October). Meanwhile, activity level in the stock market maintained an uptrend for the fourth consecutive month in November as total value of transactions grew 5.7% m/m to N175.2bn- this was driven largely by domestic investors (up 44.3% m/m) which offset the slowdown from their foreign counterparts (down 16.4% m/m).
It is pertinent to highlight that, save for the positive net flows recorded in August and September, foreign investors have been net sellers of Nigerian equities in every other month in 2019, suggesting that their appetite for Nigerian risky assets has been largely underwhelming. In our view, we think absence of structural reforms in strengthening the resilience of the domestic economy, rising vulnerabilities to external shocks, poor corporate earnings delivered mostly by consumer goods companies and in recent times, the flurry of regulatory gudelines from the CBN which has raised uncertainties in the banking sector dampened foreign investors appetite for Nigeria equities.
As things stand, with the YTD loss of 16% as of close of trading on 27 Dec, the local bourse is poised for a second consecutive year of negative close following the rally in 2017 wherein the benchmark All Share Index (ASI) closed with a return of 42.3%. That said, heading into 2020, we anticipate that there may be a respite for the local bourse in the short term, driven by portfolio rebalancing activities as well as positioning by early birds in high-yield dividend stocks with attractive entry points ahead of their FY 2019 earnings release which will be accompanied with dividend declaration.
