.. . as total transactions drop by 13.59% in full year
Following the crippling of demands for crude oil and crash in prices to a three-year low due to the ravaging COVID-19 pandemic, foreign portfolio investors in Nigeria have become worried about what may happen to their investments in a country operating a mono-economy.
Investigations revealed that the current performance, when compared with that of April last year (N148.91billion), showed 13.59 percent decline in total transactions, meaning that the total value of transactions executed by domestic investors outperformed that of foreign Investors by approximately 18percent.
Further analysis also showed that in a stretch of four months, the total transactions by foreign investors within the period under review decreased by 47.03 percent from N242.91billion in March to N128.67billion in April 2020.
Total domestic transactions accounted for about 51 percent of the total transactions carried out in 2019, whilst foreign transactions accounted for about 49percent of the total transactions in the same period.
On a monthly basis, The NSE polls trading figures from market operators on their Domestic and Foreign Portfolio Investment flows.
This further underscores the struggle of the country to attract and retain foreign investment for its economic prosperity.
By way of definition, foreign portfolio investment is the entry of funds into a country, where foreigners deposit money in a country’s bank or make purchases in the country’s stock and bond markets, sometimes for speculation.
Portfolio investments are held directly by an investor or managed by financial professionals.
Market operators have warned the management of the NSE and the Securities and Exchange Commission not to rely on the huge portfolio investment ploughed by foreign investors at all times.
They believe that as oil price dropped below $30 per barrel, it dawned on the fair weather investors that with Nigeria’s foreign reserves tumbling due to low income from the oil market and the over-whelming demand for scarce dollars in the foreign exchange market, it was time for them to quit the capital market.
“Our economy could slide into another recession, if more attention is not paid to strengthening the non-oil sector to truly diversify foreign earnings, and drive down reliance on consumption imports. The market must earn half more of its current value to the historical peak the stock market in Nigeria ever reached,” said Mr. Johnson Okodua, a stockbroker.
Commenting on the trend, Managing Director of APT Securities Limited, Malam Garba Kurfi, said the exodus of the portfolio investors from the domestic market was fueled by fears rising from falling oil price in the international market and the attendant depletion of Nigeria’s foreign reserves.
According to him, this portends looming devaluation of the naira, the local currency; therefore forcing the investors to seek escape before FOREX became acutely scarce.
He noted that this contributed to the massive loss recorded in the period in the valuation of total equities on the bourse, which closed the Q1 with an approximated loss of N2 trillion due to sell-offs.
The APT boss, however, explained that majority of the expatriates eventually returned to the market to take position on undervalued stocks with sound fundamentals, liquidity and good dividend yields after they could not finish the process of repatriating their funds from the country due to lockdown and shortage of dollar.
A financial analyst, Mr. Kayode Obadia, said foreign investors moved their money to other countries of the world, where they were confident of meeting clear policy direction.
“Nigeria’s foreign exchange policy is capable of pushing away investments owing to its persistent depreciation of the local currency. In the immediate, while we expect the ongoing optimism regarding a possible shift to a market determined exchange rate regime to support market performance, we see the impacts of these events on market performance,” Obadia said.
He explained that in the medium to longer term, there were improved performances on the back of efficiency gains from an expansionary fiscal policy, leading to improvement in aggregate demand.
He maintained that the overall impact of policy actions would be positive for the economy in the medium to long term, adding that a six-month analysis of the first half last year showed that the market benefited from the newly introduced market determined foreign exchange policy, which was a boost to investor’s confidence.
The Chief Executive Officer, Nigerian Stock Exchange, Mr. Oscar Onyema, had assured investors that the bulls would return, and advised them to take advantage of the low prices of equities and invest in the market.
Onyema assured investors of the unwavering commitment of the Exchange to solidifying its leadership position as Africa’s foremost securities exchange.
“With the ongoing market reforms and efforts by the CBN to relieve forex scarcity in the country, coupled with various initiatives, such as improving the ease of doing business by the Federal Government, foreign investors will return and the market will have a better story to tell in the near future,” he said.
