Foreign investors lower interest in Nigerian capital market

… Weaken investment by N434bn in nine months

By Kayode Ogunwale

Foreign investors’ interest in the Nigerian Capital Market has drastically dropped by N433.78 billion in the nine months of 2016.

According to the Nigerian Stock Exchange (NSE) latest monthly trading figures polls from major custodians and market operators on their Foreign Portfolio Investment (FPI) flows for the month of September, foreign investors’ transactions lower to N413.14 billion between January and September 2016 compared to N846.92 billion represented 51.22 per cent recorded during the correspondent period of 2015.

The FPI outflow includes sales transactions or liquidation of portfolio investments through the stock market, whilst the FPI inflow includes purchase transactions on the Nigerian Stock Exchange on equities only.

Many financial analysts attributed instability in foreign exchange currencies, most especially Naira against Dollar as a factor responsible for foreign investors to avoid Nigeria stock market.

At the end of September, foreign inflows outpaced outflows as foreign inflows decreased by 29.65 per cent from N34.70 billion in August to N24.41 billion in September 2016. Foreign outflows also decreased by 10.21 per cent from N21.36 billion to N19.18 billion within the same period.

The total foreign transactions in September declined by N12.47 billion, represented 22.24 per cent, from N56.06 billion in August to end the month at N43.59 billion.

Total transactions at the nation’s bourse decreased by 19.49 per cent from N117.71 billion recorded in August 2016 to N94.77 billion in September 2016. Also, total transactions from January to September 2016 decreased significantly by 40.59 per cent from N1.560 trillion recorded within the same period in 2015 to N927.08 billion in 2016.

Both foreign and domestic activities are decreasing, however the foreign activity is decreasing faster. Domestic investors outperformed their foreign counterparts by about 8 per cent as domestic transacted N51.18 billion against N43.59 billion transacted by foreign counterpart. Domestic transactions decreased by 16.98 per cent from N61.65 billion in August 2016 to N51.18 billion in September 2016.

The domestic composition of transactions on the bourse between January and September 2016 shows that Institutional investors significantly outperformed their retail counterparts in the period under review. Institutional investor transacted N30.95 billion higher than N20.23 billion of retail investors.

In the same vein, the institutional composition of the domestic market decreased by 19.11 per cent from N38.26 billion in August to N30.95 billion in September. The retail composition decreased by 13.51 per cent from N23.39 billion in August to N20.23 billion in September.

Commenting on the development, Managing Director and Chief Executive Officer of APT Securities and Funds Limited, Mallam Kasimu Kurfi said resistance of Central Bank of Nigeria (CBN) to devalue the Naira discourage foreign investor.

According to him, by the end of second quarter 2016, the foreign exchange inflows reduce to $0.65 billion compared with  $2.67 billion of same period 2015 or a drop of 75 per cent.

As at now the foreign Investor play just about 40 per cent of the market from above 50 per cent in the previous year, he said.

He however said the few foreign investor that play the market is because they can’t sources foreign exchange to write drawn their funds. It is necessary for the CBN to review their policy if they have to attract foreign Investor, he said.

In his own, a financial analyst, Mr. Bodunrin Babajide said Nigeria current economy situation is not in favour of foreign investors.

One major factor that led to this according to Babajide is the Central Bank of Nigeria’s exchange rate policy and acute foreign exchange shortages.

He believed if the apex banking regulator can solve the problem of foreign exchange, foreign investors will return back to the country.

He however urged the Securities and Exchange Commission and the Nigerian Stock Exchange to design modernity that will help local investor to be the king in Nigerian capital market.

“If regulators can work towards increasing local investor confidence and improving domestic investors participation, our market will be better off.”

We need to deep our market because currently it is too shallow, the market capitalisation is around N10 trillion. We need NNPC and it’s subsidiaries, telecommunications companies and so on to list on the market, he said.

In his own view, The Managing Partner, Matogconsult Limited, Mr. Matthew Ogagavworia said foreign investors shy away from Nigerian capital market because of uncertainty on the foreign exchange environment.

According to him, they cannot risk losing their stock market gains to a depreciation of the Naira, saying the government of Nigeria is yet to come out clean with regards to economic policy directions.

He however believed that foreign investors will come back to Nigeria once the fundamentals of the Nigerian economic are stronger and there is a clear direction on the economic policy thrust of the government.