Nigeria: Sustained market rally requires domestic retail investors

Dear Africa interested professionals:

On April 25, 2016, I wrote an article (can be found as the featured post on this blog or using the  search function) and stated that the domestic retail investor will determine the performance of the Nigerian stock market.  2018 has brought more evidence to buttress my assertion.

The Nigerian stock market’s most ignored and maligned customer base is the domestic retail investor.  This largely ignored customer base determines how the stock market in Nigeria will perform. In January 2018, domestic retail investors put N106.5B in the Nigerian stock market and the stock market rose approximately 16%. The contribution of domestic retail investors has not even reached half of that figure per month from February to June 2018 and the Nigerian stock market is now in negative territory at approximately 1.6%.

Total foreign portfolio investment from January - May 2018 rose by 121% compared to the same period in 2017. Domestic institutional investment only rose by 58% over the first five months of 2018 relative to the same period in 2017. If domestic investors do not believe in the viability of their own stock market buoyed by the non-exposure to currency risk, foreign portfolio investors will continue to trade stocks rather than invest in stocks. Domestic institutional investors need to increase their stake in the Nigerian equity market if market stability is to be a sustained reality. Domestic retail investors need to be encouraged to invest more funds more frequently and consistently, if all investors are to experience gains from a sustained market rally.

The Nigerian ASI peaked in March 2008 driven by an all-time high number of domestic retail investors in the Nigerian stock market that started in early 2007. The stock market ended up down by 45.8% in 2008 driven by foreign portfolio investors fleeing.

The Resource Curse is afflicting Nigeria to a large extent. The Foreign Complex Curse is afflicting the Nigerian stock market courtesy of the brokerage firms. More attention and resources continue to be devoted to the foreign investor that is not able to generate a sustained upward rally in the stock market but is continually sought out for this purpose. It is time to look inward; the road to significant financial gains lies with the domestic retail investor. This is a fact; not feelings.


Comments

Post a Comment

Popular posts from this blog

Earnings Quality among African companies: Recurring restatements are not welcome

Dear Africa interested professionals:                                                            When I ponder on earnings quality, it goes beyond the financial performance of the companies as provided to us by their directors.  Are the numbers provided to us possess the qualities of transparency, authenticity and longevity?  Are this year's numbers going to be adjusted (restated) next year with the reality of this already known today?  Do restatements suddenly become an annual recurring act for some companies, just the way financial reports are audited annually? Public companies that continually restate their books, change key figures significantly without any clear, detailed explanation are guilty of poor earnings quality as their audited financials are not as reliable as they should be.   I have randomly selected visible companies across different industries in Africa and reviewed their two most recent annual reports (covering three fiscal years) for restatements an
Read more

GUINNESS NIGERIA & EAST AFRICAN BREWERIES - Same Ownership - Differing Loyalties

Dear Africa interested professionals: A throwback to a thematic analysis I did looking at Diageo's subsidiaries in Kenya and Nigeria in 2015 can be found below the dotted lines.  Five years later, nothing has significantly changed for the better.  Guinness Nigeria has sold its conscience to the Nigerian environment (opaqueness and self-serving decisions take center stage) while East African Breweries still tries to hold on to transparency and proper business management and this has reflected in its performance over the years.   Guinness Nigeria's better days are behind it and current actions do not bode well for the future.  When transparency goes out the door, there is nothing left behind worth admiring.  I will pick on two simple things to reflect on. 1 . Both companies made earnings expectation announcements to their respective stock exchanges for the fiscal year ended June 30, 2020 of a significantly negative performance relative to a year earlier.   East African Breweries
Read more

The clamor for continued devaluation of African currencies reeks more and more of selfish interests

Dear Africa Interested Individuals:                                                         The clamor continues for commodities export dependent (especially oil) economies to further devalue their currencies.  I keep asking myself "when is enough finally enough?"  The clamor is largely driven by global economists across the spectrum loyal to economic theory and the countries they are domiciled in, portfolio managers and large commercial banks in the countries of focus with net positive (more dollar inflows expected than dollar outflows) dollar exposures.   What does devaluation do to the people in the countries that have devalued their currencies multiple times (or one devaluation of 20% or more) over a short period? 1. Inflation rises quickly and is driven by those directly and indirectly impacted which is everybody .   2. Chances are high that the Central Bank (Fed in the USA) will have to raise interest rates to stem inflationary pressures in the economy. T
Read more