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By Chinenye Anuforo and Chinwendu Obienyi
The dominance of foreign investors in the capital market over the years has brought about its seamless reaction to global shocks.
Though latest statistics from the Nigerian Stock Exchange (NSE) showed that domestic investors outperformed foreign investors by 7.40 per cent for the first time in six years, there is still need for more local participation as foreign inflows increased by 403.09 per cent from N14.54 billion in April to N73.15 billion in May 2017. Foreign outflows also increased by 178.63 per cent from N7.91 billion in April to N22.04 billion in May 2017.
This means that foreign portfolios are still very much vibrant and dominating local participation in the market. It is therefore pertinent to say some domestic investors are yet to get off the grips of last year’s decline or the understanding of the capital market.
Toyin Sanni, the Group CEO of UBA Capital, says the Nigerian capital market plays an integral role in the financial market, which comprised debt capital market valued in excess of $37.5 billion as well as the equity market with capitalisation in excess of $85 billion.
According to her, “one of the ways we can extract values for stakeholders is by reminding them that this economy is our economy and we are the ones that have a long term stake. Our economy, like most global markets, is sensitive to global development but if we have a strong participation by domestic investors in our economy, it actually helps to make our economy much more stable.
“One of the things we hope to develop further is domestic investor confidence, which is very critical for the long term health and stability of our market. It is one of the things we want to continue to explore,” she said.
An economist and investment analyst, Biodun Adedipe, argued that with the persistent volatility witnessed in the Nigerian stock market in the last few years, causing the market to decline by over 33 per cent, there was need for increased local investors’ participation in the market, noting that if local investors fail to take position now, foreign portfolio investors would continue to dominate transactions in the NSE.
He, however, maintained that government must begin to apply the principles of all-inclusive growth where policy choices must align with monetary, fiscal, trade and investment, which, according to him, would spur activities in all the sectors including the stock market.
Adedipe, however, added that local investors should ensure that their investment in the market are made on a longer-term perspective rather than short term.
“The stock market has remained volatile, declining by over 33 per cent in the last few years. Most stocks have dipped more thatn 50 per cent within the last two years, thereby making their prices affordable. There is no better time to invest in stocks than now. Most of the prices have hit the bottom,” he said.
In his own contribution, the Chief Executive Officer of Cranes Securities, Mr. Mike Ezeh, said it was important for domestic investors in the nation’s capital market to leverage the current low prices of stocks quoted on the exchange for future gains, adding that the market was ripe for investment going by the low prices of stocks. He noted that it was obvious that activities will stabilise in the market in no distance time, adding that this was the perfect opportunity for investors to stake their funds in the market.
He said, “this is the right time for investors to take part in the equities market, with the prices of shares at their lowest levels. Brokers are confident that with the issue of recession being addressed, the market would begin to stabilise and investors would begin to record significant appreciation on their investments.
“The market still suffers from confidence issues within the domestic sector. We need increased level of domestic participation to improve the volume of trades and to contain the high volatility currently being experienced in the market.
The Chairman, NASD OTC Plc, Mr. Tola Mobolurin, while also speaking at a forum, said that if local institutions were expanded, they would generate savings within the country thereby substituting foreign capacity.
According to him, it was desirable for the government to seek how to moderate the destabilising influence of foreign portfolio investors in the Nigerian capital market by boosting domestic participation in the market.
He said, “we must generate savings within the country to supplement foreign investment. We cannot depend on foreign investment if we want to salvage this country.
We need to expand local institutional investment capacity and to achieve this, Pension Fund Administrators (PFAs) must play a larger role to do this. “Given that the industry is highly fragmented with most operators lacking both human and capital capacity, it is high time the various processes that have been put in place both by regulators and other decision makers in the capital market are implemented to encourage and ginger the expansion of local investment base in the nation’s capital market.”
