Why Foreign investors pull out N131bn from Nigeria market


Foreign investors in the nation’s equity market have started withdrawing their funds from the country in the tune of N131 billion as 2019 general elections approach, going by the indications of Nigeria Stock Exchange (NSE) trading figures.

The NSE domestic and foreign portfolio participation in equity trading report released recently showed, that for the first time in 2018, foreign investors outflow outperformed inflow during the month of May.

On a monthly basis, the NSE polls trading figures from major custodians and market operators on their Foreign Portfolio Investment (FPI) flows shows that foreign investors pulled out N130.89 billion in May which was the highest since beginning of the year 2018.

Foreign portfolio investment outflows from the country’s stock market rose by 124.7 percent in May 2018, with the market capitalisation of listed equities losing N1.146 trillion as it fell to N13.802 trillion.

The value of foreign outflow in May was the highest in the year when compared with N74.64 billion, N38.33 billion, N62.50 billion and N58.25 billion pulled out between January and April this year.

The FPI outflow includes sales transactions or liquidation of portfolio investments through the stock market, while the FPI inflow includes purchase transactions on the NSE (equities only), according to the report.

Also, there was a 3.45 percent decrease in foreign inflows to N62.06 billion in May from N64.28 billion in April. While the foreign outflows increased from N58.25 billion in April to N130.89 billion in May 2018.

However, the total transactions at the equities market increased by 49.96 percent from N212.23 billion recorded in April to N318.27 billion in May.

The five-month report also showed that the cumulative transactions from January to May increased by 97.13 percent to N1.409 trillion in 2018 compared with N714.99 billion recorded in the same period of 2017.

The report also shows that institutional composition of the domestic market increased by 97.87 percent from N46.51 billion in April to N92.03 billion in May. The retail composition, however, declined by 22.92 percent from N43.19 billion in April to N33.29 billion in May.

The month-on-month analysis had shown a positive trend in net foreign investment inflow throughout the first quarter of 2018. Foreign inflow totalled N91.75 billion in January 2018 as against outflow of N74.64 billion. Foreign inflow and outflow stood at N44.89 billion and N38.33 billion respectively in February 2018 while foreign inflow and outflow recovered to N69.71 billion and N62.50 billion respectively in March 2018.

Market pundits however attributed the surge in foreign outflow to uncertain political climate as the country’s general election draw closer.

Meanwhile, the Nigerian equities market has lost a total of N320 billion following weak demand by investors who are adopting cautious trading.

The stock market, which ended 2017, as the third best performer, had sustained that uptrend in the beginning of 2018. But profit-taking that followed thereafter pared the gains and made the market to close the first half of the year with a marginal growth of 0.09 percent.

However, the factors that fuelled the persistent bear run since the second quarter of the year have continued, leading to a decline of N320 billion in the market capitalisation in the first two weeks of second half year.

Specifically, the market capitalisation fell from N13.866 trillion to N13.546 trillion, indicating a decline of 2.3 percent.

Although many analysts believe that stocks in the Nigerian market are relatively cheaper, the market has continued its downward trend as some investors have remained on the sidelines watching developments in the political environment.

Analysts at Afrinvest Research recently said five factors would drive the market in H2 of 2018. They cited the factors as new listings, budget implementation, elections uncertainties, sustained liquidity in forex exchange and corporate earnings.

According to the analysts, the general election uncertainties would make investors to adopt cautious trading in equities.

“In line with historical trend, investors tend to reduce exposure to risky assets in the year leading up to general elections and this is similar to the situation in Nigeria.

“The one thing investors detest is “uncertainty” and as such, this downside risk is expected to worsen as 2019 general election draws closer,” they said.

They added that while the delayed passage of the 2018 budget could potentially have stalled some of the expected benefits associated with the budget implementation, “we believe sufficient implementation will have a feedback positive impact on companies’ earnings as well as consumer spending.”

Speaking on the impact of forex market, Afrinvest said since the launch of the Investors’ & Exporters’ FX window in April 2017, which resulted in increased foreign portfolio inflows into the domestic market, the Central Bank of Nigeria (CBN) has been able to sustain liquidity via weekly retail and wholesale interventions.

“However, while we note that FX liquidity in the market has remained somewhat adequate, the continued focus of the CBN on keeping rates within a particular band, has weighed on investors’ confidence.

“Furthermore, the fact that the CBN remains the major supplier of FX to the market has also weighed on sentiment and this could continue to pressure foreign investor sentiment, which will have a feedback negative impact on the equities market,” they said.

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