The stock trading volume recorded by the Nigerian Exchange Limited (NGX) fell by 62.65 percent in August to the lowest level in four months, new official data show.
Total transactions tumbled to N262.56 billion last month from N702.98 billion in July, according to the NGX.
The stock market has seen a spike in transactions since May when President Bola Tinubu took office and embarked on reform efforts. The market soared on the last two trading days of that month following the announcement of petrol subsidy removal.
The trading volume, however, declined last month for the first time since the massive rally occasioned by the reforms, including the devaluation of the naira in mid-June.
Foreign transactions decreased to N37.16 billion in August from N40.54 billion in the previous month, while domestic trades decreased to N225.40 billion from N662.44 billion.
Foreign inflow increased to N13.79 billion from N9.45 billion, while outflow dropped to N23.37 billion from N31.09 billion.
The NGX said retail transactions dropped by 57.76 percent to N97.13 billion from N229.95 billion, while the share of institutional investors fell by 70.34 percent to N128.27 billion from N432.49 billion.
Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said the decline in transactions in August could be linked to the market being overpriced, reports of poor performance of non-financial institutions, and a further hike in interest rates.
“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,” he said.
Nigeria’s equities market started the month of August on a negative note as investors continued to price in the half-year financials released by some companies, most of them tilting towards poor earnings.
“Secondly, between July and early August, we saw a number of reports by financial institutions, and reports by financial institutions were attractive but for other sectors, they were not so great,” Omosuyi said.
In the last week of July, the central bank raised its benchmark interest rate for the eighth consecutive month by 25 basis points to 18.75 percent.
Omosuyi said that as a result of the increase in interest rate as well fixed income rates, bond yields increased substantially, from 12 to 14 percent between July and August, which provided some leeway for retail and domestic investors to find value in the fixed income space, as the stock market seemed to be overpriced.
Akintoye Adelakun, a Lagos-based portfolio manager, said the lower stock trading volume could be due to mixed sentiments.
“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,” he said.
The transaction data for 2023 shows that total domestic transactions are circa N2.194 trillion, whilst total foreign transactions are circa N222.78 billion.