The Nigerian Exchange Limited (NGX) has reported a substantial 62.65 percent decline in stock trading volume for the month of August, marking the lowest level in four months, according to newly released official data.
Total transactions on the NGX plummeted from N702.98 billion in July to N262.56 billion in August. This sharp drop in trading activity comes after a period of heightened market activity, which began in May following President Bola Tinubu’s inauguration and his subsequent reform initiatives. Notably, the market witnessed significant growth in the final days of May, driven by the announcement of petrol subsidy removal.
However, last month marked the first decline in trading volume since the surge prompted by various reforms, including the devaluation of the naira in mid-June.
Foreign transactions also recorded a decline, falling to N37.16 billion in August from N40.54 billion the previous month. Domestic trades saw a more substantial drop, decreasing to N225.40 billion from N662.44 billion.
While foreign inflow increased slightly to N13.79 billion from N9.45 billion, outflow decreased to N23.37 billion from N31.09 billion.
The NGX’s report revealed that retail transactions experienced a significant decline of 57.76 percent, dropping from N229.95 billion in July to N97.13 billion in August. The share of institutional investors also decreased by 70.34 percent, falling from N432.49 billion to N128.27 billion.
Temitope Omosuyi, investment strategy manager at Afrinvest Limited, offered insights into the reasons behind the August downturn in transactions. He suggested that the market might have become overpriced, prompting investors to step back and assess the situation, waiting for potential price corrections.
Omosuyi explained, “It seems the positive performance of the market earlier in the year attracted a lot of people and it’s somewhat overpriced; so investors may be taking a step back to assess what is happening to see if prices would decline so that they can come in again.”
Additionally, Omosuyi cited reports of poor performance by non-financial institutions and a recent hike in interest rates as contributing factors. The Central Bank of Nigeria raised its benchmark interest rate for the eighth consecutive month in July, reaching 18.75 percent.
Akintoye Adelakun, a Lagos-based portfolio manager, echoed the sentiment of mixed investor sentiment. He noted, “For some investors, the market is fully priced; for others, there seems to still be some opportunities. For foreigners, foreign exchange challenges remain a big deal. As long as FX sources remain weak, foreign investment will be weak.”
As market participants navigate these factors, the Nigerian equities market continues to evolve, with domestic and foreign investors assessing opportunities and risks in a changing economic landscape. The transaction data for 2023 highlights the importance of monitoring market dynamics, with total domestic transactions at approximately N2.194 trillion and total foreign transactions at around N222.78 billion.