Q1: Domestic transactions of equities increase by 89%

THE total domestic transaction of equities on the Nigerian Stock Exchange (NSE) increased by 89.01 per cent in the first quarter of year 2020 compared to transactions in the corresponding period of 2019.

According to the report by the NSE on domestic and foreign portfolio participation in equities trading, total equities market transactions increased in Q1 2020 compared to transactions done in the corresponding period of 2019. The ratio of total domestic transactions to total foreign transactions tilted to 60:40 in Q1 2020, from 47:53 in Q1 2019, given the 89.01 per cent increase in total domestic transactions as compared with the marginal 13.52 per cent rise in total foreign portfolio transactions.

Specifically, total transactions on the nation’s bourse increased to N626.87 billion in Q1 2020 from N420.26 billion recorded in Q1 2019; of which total domestic transactions increased to N374.98 billion from N198.39 billion while FPI transactions rose to N251.87 billion from N221.87 billion.

Breakdown of the FPI transactions in Q1 2020 showed that foreign portflio outflows increased by 50.19 per cent to N186.60 billion; however, the foreign portfolio inflows dropped by 33.15 per cent to N65.27 billion. Domestic institutional transactions spiked year on year by 102.94 per cent to N203.53 billion in Q1 2020. Also, retail investors’ interest in equities market were stimulated by lower share prices, as transactions from this group rose sharply to N171.45 billion in the quarter under review from N98.10 billion in Q1 2019.

Amid significant sell-offs, particularly by the foreign portfolio investors, the NSE All Share Index (ASI) plummeted by 20.65 per cent to 21,300.47 index points in Q1 2020 when compared to a 1.24 per cent decline to 31,041.42 index points in Q1 2019. The sharp decline in fixed income yields, especially treasury bills stop rates which dropped for all the three maturities (91-day, 182-day and 364-day stop rates fell to 2.20 per cent, 3.20 per cent and 4.30 per cent in March 31, 2020 from 3.00 per cent, 4.00 per cent and 5.7 per cent in February 26, 2020, and 10.90 per cent, 13.09 per cent and 14.37 per cent in March 31, 2019) suggest that investors opted for capital preservation amid COVID-19 pandemic.

Analysts at Cowry Asset Management however expect the local equities market index to remain bearish even in the second quarter of the year as FPIs trade cautiously amid negative effect of COVID-19.

Analyst, however, emphasize the need for the federal and states governments to increase their investments in education as the skill sets needed to take Nigeria to, and beyond, the industrial age must be acquired. Hence, we expect government to boost spending towards improving human capital, even as it is currently doing on physical infrastructure, in order to reduce the high rate of poverty and inequality in the country via industrialization which creates more employment opportunities for citizens.

Meanwhile, in line with expectations, the local equities market closed in the green amid sustained bargain hunting activity. Hence, the local bourse climbed by 4.45 per cent week-on-week, resulting in increase of the NSE ASI to 24, 045.40 points. Similarly, all of the sub-sector gauges closed northwards, especially the NSE Consumer Goods which rose significantly by 8.45 per cent to 402.49 points.

Also, the NSE Banking index, NSE Insurance index, NSE Oil/Gas index and NSE Industrial index grew by 3.99%, 2.76%, 2.83% and 2.20% respectively to 282.41 points, 125.24 points, 215.04 points and 1,034.88 points respectively. Elsewhere, market activity was weak as total deals, transaction volumes and Naira votes moderated by 17.33%, 15.35% and 29.23% to 17,023 deals, 1.01 billion shares and N9.89 billion respectively.

However, investors are cautioned to trade carefully as it is expected that the local equities market might close in red in the new week as investors book profit given the two consecutive weeks of bullish activity.

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