The flow of foreign divestments compared against investments has increased in recent period as edgy foreign investors appeared to ignore the significant undervaluation of Nigerian equities and the new earnings season to sustain negative foreign portfolio investment trend.
The latest Foreign Portfolio Investment (FPI) report of the Nigerian Stock Exchange (NSE) indicated that there was “significant increase in foreign portfolio investment outflow”. The report showed that nearly three-quarters of the transactions on the Nigerian stock market were done by foreign investors during the period, highlighting the dominant negative trend orchestrated by the foreign divestments.
The report, obtained at the weekend, showed that foreign portfolio investment outlook has so far this year been negative, with year-to-date deficit of more than N32 billion. The latest available data were transactions in February 2015.
According to the NSE, foreign outflows totalled N81.60 billion last month as against inflow of N52.35 billion, indicating a significant increase on the downtrend that started the year when foreign portfolio outflow was N51.08 billion against inflow of N48.03 billion.
Year-to-date, total foreign inflow stood at N100.38 billion compared with outflow of N132.68 billion, representing net deficit of N32.3 billion. The report underlined concerns that foreign investors were downsizing their portfolios. Nigeria recorded negative net foreign portfolio position of N154.14 billion in 2014 as against a positive net position of a modest N20.48 billion in 2013.
The latest report also showed continued dominance of the foreign investors in the Nigerian market with foreign transactions accounting for 72.61 per cent of total transactions in February compared with 27.39 per cent contributed by domestic investors. Foreign investors had contributed 52.24 per cent while Nigerian investors accounted for 47.76 per cent in January.
Altogether the proportion of foreign transactions to domestic transactions so far this year stood at 62.28 per cent and 37.72 per cent respectively.
The NSE report is generally regarded as a credible gauge of foreign portfolio investments in Nigeria as it coordinates data from nearly all active investment bankers and stockbrokers. Nigeria presently operates a mono stock exchange, which makes the NSE the sole gateway to the nation’s stock market and the NSE’s benchmark indices, the country indices for Nigeria.
The NSE report used two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy. Foreign portfolio investment outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE.
Amid concerns that increased foreign divestments and resultant pressure on the national currency, the Central Bank of Nigeria (CBN) recently reassured that it would not impose any restriction on the current financial market’s regime of “free entry, free exit”.
But the CBN said in spite of the pressure, the apex bank would not resort to imposition of capital control, which last vestiges were removed in 2009.
Governor, Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, said capital control is not an option in the bank’s fiscal and monetary management.
According to him, Nigeria wants to maintain its current status of a “free entry, free exit” market, where foreign investors will not be impeded in their legitimate decisions to invest their funds in the country and also to take profits, repatriate their dividends and capital gains or outright divestment.
The 12-month foreign portfolio investment report for 2014 had shown that foreign portfolio outflow was N846.53 billion as against inflow of N692.39 billion in 2014, representing a net deficit of N154.14 billion. In 2013, total foreign inflow stood at N531.26 trillion compared with outflow of N510.78 trillion, leaving a positive balance of N20.48 billion.
The report showed a notable spike in foreign transactions, although the negative colouration indicated that the propensity was towards divestment rather than investment. Total foreign transactions rose by 52.5 per cent to N1.54 trillion in 2014 as against N1.01 trillion in 2013.
Meanwhile, foreign investors remained the dominant bloc at the Nigerian stock market. Foreign transactions accounted for 52.52 per cent of total transactions in 2014 while domestic investors accounted for 42.48 per cent. In 2013, foreign investors had accounted for 50.80 per cent while Nigerian investors accounted for 49.20 per cent. Domestic investors traded N1.137 trillion in 2014 as against N1.009 trillion in 2013.
Market analysts said investors were anxious about Nigeria’s macroeconomic and monetary outlook in the light of the declining global oil prices and rising economic risks. They also cited political risk.
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