The Nigerian Stock Exchange (NSE) report on domestic and foreign portfolio participation in equities trading showed that total equities market transactions decreased in August 2020 compared to transactions done in July 2020.
Specifically, total transactions on the nation’s bourse moderated to N94.45 billion in August (from N103.21 billion printed in July); of which total domestic transactions fell to N55.47 billion (from N68.62 billion). However, FPI transactions rose to N38.98 billion (from N34.59 billion).
Hence, the ratio of total domestic transactions to total foreign transactions tilted to 59:41 in August 2020, from 66:44 in July 2020.
Breakdown of the FPI transactions in August 2020 showed that foreign portflio outflows increased by 2.06% to N21.32 billion; also, the foreign portfolio inflows jumped by 28.91% to N17.66 billion.
Domestic institutional transactions fell month on month by 20.01% to N28.86 billion in August 2020; also, the retail investors’ interest in equities market was weak as transactions from this group moderated to N26.61 billion in the period under review from N32.54 billion in July 2020.
In another development, the Monetary Policy Committee (MPC) at the end of its meeting on Tuesday, September 22, 2020, voted to reduce the Monetary Policy Rate (MPR) by 100bps to 11.50% despite the rising inflation rate which hit 13.22% in August. Also, it adjusted the asymmetric corridor from +200 bps and -500 bps to +100 bps and -700 bps around the MPR.
According to the Committee, the lingering uncertainty associated with COVID-19 pandemic weakened aggregate demand. It also noted that investors are still cautious given the possibility of a second round of lockdown.
The MPC, in line with our thought which we expressed in our Cowry Weekly Report dated Friday, September 18, 2020, stated that the recent uptick in inflation was chiefly due to structural factors, broad-based insecurity challenges across the country, and the exchange rate adjustment.
The Committee also expects that the recent increase in energy cost would further impact the domestic price level in the short-term. Hence, the ease in monetary policy further complements its earlier efforts in the wake of COVID-19 pandemic when the Monetary authority had, in sync with the fiscal authority, expanded its developmental agenda via a N3.5 trillion spending plan aimed at increasing access to cheaper credit, stimulating aggregate demand, facilitating the creation of domestic value chains and growing infrastructure base.
Meanwhile, WTI crude price tanked week-on-week (w-o-w) by 2.21% to USD40.31 a barrel gave a 0.87% w-o-w fall in US crude oil input to refineries to 13.37 mb/d as at September 18, 2020 (it also fell by 19.02% from 16.51 mb/d printed on September 20, 2019).
Similarly, Brent price fell by 3.10% to USD42.46 a barrel while Bonny Light declined 4.01% to USD40.78 a barrel as at Thursday, September 24, 2020. However, we saw the U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fall further w-o-w by 0.33% to 494.41 million barrels (but rose by 17.85% from 419.54 million barrels as at September 20, 2019).
The cut in MPR to 11.50% asserts the expansionary stance of the Monetary authority given the sluggish pace of economic growth – PMIs for Manufacturing and Non-manufacturing fell to 46.9 points and 41.9 points in Sept. 2020 (from 48.5 and 44.7 in Aug. 2020) respectively. On the flip side, its action may trigger a weakening of the Naira which would partly contribute to the rising inflation.
Going forward, it appears CBN wants to drive down price level by unlocking economies of scale in the real sector as businesses are expected to increase production to lower average costs amid access to cheaper funds.