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By Kelechi Mgboji
For the first time in about three years, monthly foreign portfolio investment inflows outpaced outflows at the Nigeria Stock Exchange (NSE), raising hope that financial assets may be moving back to the equities market, away from dominant fixed income market.
NSE latest Foreign Portfolio Investment (FPI) report posted on its website shows that monthly foreign inflows increased 403.09 per cent from N14.54 billion in April to N73.15 billion in May 2017. Though outflows also increased by 178.63 per cent from N7.91 billion in April to N22.04 billion in May 2017, it is an apparent improvement in relation to activities as of March.
Outflows had accelerated to N108.87 billion end of March, 2017, the highest single outflow in one month since November 2014 when outflows stood at N116.50billion.
“Two major factors are responsible to this improvement. First, inflation rate is declining, and the economy is moving out of recession. Most importantly, the special foreign exchange window which the CBN created for exporters and foreign investors has improved investor confidence. It has encouraged investors to come and go out at will,” says David Adonri, Chief Executive Officer, HighCap Securities Limited.
The NSE senior dealing member said that the improvement could be much better if the monetary authorities allow a single, market determined foreign exchange rate; in other words there has to be flexible exchange rate where the local currency (naira) is floated and allowed to be determined by market forces.
The report which captures transactions, foreign and domestic, shows that outflows rose sharply from N42.88 billion as of May 31, 2015, two days after the sitting government of Mr. Mohammadu Buhari was inaugurated, to N108.87billion by end of March this year.
However, the trend reversed in May, indicating that fleeing investors are gradually returning to the equities segment of the Nigerian capital market.
Investment analysts say that the authorities should take urgent steps to make business environment more competitively attractive if only to sustain the improving investor confidence needed to attract foreign direct investments.
Between 2015 and 2017, FPI outflows had consistently exceeded shrinking inflows. Last March saw the highest outflows (N108.87bn) but 46.83 percentage increase in foreign inflows from N16.10 billion in February 2017 to N23.64 billion in March. The resulting liquidity freeze worsened the bearish condition of Nigerian capital market, with equities prices crashing across board.
Mr. Abiodun Keripe, Head of Research and Strategy, Elixir Investment Partners Limited, commended the Central Bank of Nigeria (CBN) saying that the measures taken by the apex bank have translated into positive effects on banking and the capital market.
“Foreign Portfolio Investors are beginning to return gradually to the equities market. They are likely to maintain steady rise in their interest in the capital market as government begins to get it right across board,” the senior analyst stated in a telephone chat.
According to him, foreign investors are likely to maintain steady rise in their interest in Nigeria’s financial markets so long as government ensures stable macro-economic environment including GDP growth, forex exchange stability, and keep inflation low, such that if you are on fixed income, the yield on such fixed instrument will not be negatively returned.
