LAGOS, OCTOBER 15, 2018 – Foreign portfolio investors appear to be discounting Nigeria’s political risks and focusing on the fundamentals of the markets.
Trading data on foreign portfolio investments (FPIs) polled by the Nigerian Stock Exchange (NSE) from major custodians and capital market operators showed a positive trajectory in both level of activities and the direction of transactions.
The report, the latest on FPI, showed that inflows into the Nigerian investment market by foreign investors rose by about 85 per cent, on the same curve with an increase of 96.21 per cent on the total transactions by foreign portfolio investors. For the second consecutive month, Nigeria recorded positive net FPI position.
The report for the trading month ended August 30, 2018 showed that total value of FPI transactions increased by 96.21 per cent from N36.17 billion in July 2018 to N70.97 billion in August 2018. Foreign portfolio inflow increased from N19.83 billion to N36.66 billion while foreign portfolio outflow increased from N16.34 billion to N34.31 billion, sustaining a two-month positive net FPI position.
A year-to-date analysis showed improved performance in the FPI compared with the corresponding period of 2017. Total FPI transactions for the eight-month period ended August 2018 stood at N906.86 billion compared with N699.07 billion recorded in comparable period of 2017. Foreign inflow and outflow stood at N437.14 billion and N469.71 billion respectively in 2018 compared with N419.88 billion and N279.19 billion, narrowing the deficit considerably.
The FPI 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. 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.
Many analysts said the political risks, which had compounded macroeconomic risks as the 2019 elections approach, might be giving way to renewed optimism.
Managing Director, NASD OTC Securities Exchange Plc, Mr Bola Ajomale, said Nigeria had pulled away from similar political skepticism and could repeat another round of peaceful elections.
“A lot of people have been saying the elections are going to be difficult, things are going to slowdown and it will probably lead to a run on the market and so on. I’m beginning to take a bit of a contrarian view. Few years back, we had elections, very successful one that I think surprised people more than their expectations. I don’t think people expected that it would work out that smoothly. The same kind of pessimism is being expressed now that things are going to be difficult, it’s going to be a hard time, it’s going to be chaotic and so on and so forth. Who says that we cannot do it again? We have done it once before. I don’t anticipate nor do I expect there would be a particularly disruptive political process. And I think the more people start thinking in that manner, the better prepared to at least support the system running well,” Ajomale said.
He noted that a smooth electoral process would enable Nigeria to achieve greater economic performance and strengthen investors’ confidence in the Nigerian economy.
“In the best case scenario of a less disruptive and smooth election, I will expect that we will hit about three to four per cent growth rate next year; if we have a smooth transition in an election that is free and fair with no hassles whatsoever and we get the right ministers and the right calibre of people in the right places and we get work starting immediately,” Ajomale said.
Analysts at Afrinvest Securities identified lingering political uncertainties and weakened appetite for emerging market assets as two major factors mitigating performance at the Nigerian stock market.
Total transactions at the Nigerian stock market meanwhile dropped by 8.37 per cent from N146.07 billion recorded in July 2018 to N133.84 billion in August 2018. Cumulative transactions from January to August however increased by 22.99 per cent from N1.526 trillion recorded in 2017 to N1.877 trillion in 2018.
Foreign investors outperformed domestic investors by 6.06 per cent in August 2018. There was a significant decrease of 42.79 per cent in total domestic transactions from N109.9 billion in July 2018 to N62.87 billion in August 2018.
Total transactions at the NSE had reduced from N187.78 billion recorded in June 2018 to N146.07 billion in July 2018. Domestic investors accounted for 50.48 per cent of total turnover in July 2018 as total domestic transactions increased by 28.72 per cent from N85.38 billion in June 2018 to N109.9 billion in July 2018. Domestic transactions were largely driven by the 55.48 per cent increase in the retail domestic participation which increased from N29.12 billion in June 2018 to N65.42 billion in July 2018.
Total transactions for the seven-month period ended July 2018 increased by 54.38 per cent from N1.129 trillion recorded in 2017 to N1.743 trillion in 2018.
Foreign portfolio investors were the dominant group in the Nigerian equities market in first half of this year with about N800 billion. Foreign investors’ transactions accounted for N799.7 billion within the six-month period ended June 30, 2018, representing an increase of 85.9 per cent on N430.23 billion FPI trading recorded in the comparable period of 2017.
Foreign investors had marginally outpaced Nigerian investors with 50.07 per cent of total value of transactions in first half of 2018 compared with the first half of 2017 when Nigerian investors accounted for 54 per cent of total value of transactions.
Domestic investors traded N797.47 billion worth of equities during the first half of 2018, 57.9 per cent increase on N505.03 billion traded in comparable period of 2017. Altogether, total transactions at the equities market rose from N935.26 billion in first half 2017 to N1.597 trillion in first half 2018.
The report however showed a negative trend in FPI trading with more outflows than inflows. Net FPI deficit stood at -N38.41 billion in first half 2018 compared with net positive position of N1.71 billion recorded in first half 2017. Foreign inflows and outflows stood at N380.65 billion and N419.06 billion respectively in first half 2018 compared with inflows and outflows of N215.97 billion and N214.26 billion respectively in first half 2017.
Month-on-month analysis showed that FPI transactions totalled N102.41 billion in June, consisting of inflows of N47.96 billion and outflows of N54.45 billion. Total transactions at the equities market had dropped from N318.27 billion in May 2018 to N187.78 billion in June 2018.
The report indicated that foreign investors’ outflows from the equities market increased by 124.7 per cent to about N131 billion in May as against N58.25 billion in April. However, there was a 3.45 per cent decrease in foreign inflows to N62.06 billion in May as against N64.28 billion recorded in April.
