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Market Digest Nigeria

Business

Foreign Portfolio investments Value in equities fall 51% on currency challenges

The value of foreign portfolio investments (FBI) in the Nigerian equities market fell by 51.4 per cent between January and November 2016 following the tight foreign control policies of the Central Bank of Nigeria (CBN). Data from the Nigerian Stock Exchange (NSE) released last week showed that foreign portfolio investments (FBIs) between January and November 2016 stood at N473.5 billion, down from N973.7 billion in the same period of 2015.

Although the capital market has remained attractive due to low prices of stocks, foreign investors, who used to dominate, have stayed away as a result of currency, liquidity and reinvestment risks.

Speaking on the impact of the foreign exchange (FX) challenge on the market, the Chief Executive Officer of the NSE, Oscar Onyema said after peaking at 31,071.25 in June 2016, an increase of 8.48 per cent over the 2015 closing value, the NSE All Share Index (NSE ASI) began to retreat to negative territory as total foreign inflow dropped 45 per cent between June (N42.46 billion) and July (N23.43 billion) due to loss of confidence in the implementation of an announced free floating FX regime, weak corporate performance and second consecutive quarter of negative economic growth in the period resulting in the economy entering into a recession.

Commenting on the low level of FPIs, analysts at Afrinvest said the currency controls which led to the protracted crunch in the Nigerian FX market throughout 2016 continues to prevail in the current operations of the fx market.

“Thus, the persistent confidence deficit amongst foreign investors in returning to the Nigerian market due to currency, liquidity and reinvestment risks will remain a drag on capital inflows, performance of corporates and capital market performance,” they said.

The analysts said that the disinterest by foreign investors in keying into opportunities in the Nigerian market is also evident in the performance of the Futures market which was introduced by the CBN in 2016 as a medium by which foreign investors can hedge against currency risks.

“Despite the attractive prices of the contracts on offer, percentage of total subscription stood at 31.9 per cent as at January 12th 2017 whilst none of the contracts on the calendar have been fully subscribed as investors remain wary of an overhanging liquidity risk at time of exit,” they said.

Meanwhile, Onyema has expressed high optimism that 2017 would be a better year for the Nigerian economy and the capital market.

According to him, Nigeria is expected to recover from its recession in 2017 with a modest gross deposit product (GDP) growth forecast of 0.6 per cent driven by vigour of fiscal policy implementation, with a keen focus on articulation of desired goals, lower rates of disruptions to oil infrastructure from resolution of the Niger Delta conflict, thereby increasing FX inflows, crude oil prices remaining above the federal government’s benchmark of $42.5 per cent and positive impact of the war against corruption manifested in ease of doing business improvement among others.

The NSE boss said notwithstanding the forgoing, the Nigerian capital market will have to do a better job at promoting its unique value proposition to both global and domestic investors.

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