Foreign Investments In Nigerian Shares Rise By 80.6%

FOREIGN portfolio investments in the Nigerian stock market rose by 80.6 per cent to its highest level in 11 months as Nigerian equities continued to outperform average global return.

Nigeria’s latest foreign portfolio investment (FPI) report obtained at the weekend showed that foreign portfolio inflows rose by 80.6 per cent to N25.28 billion in October 2020, a major leap from N14 billion recorded in September 2020. The latest inflow represents the highest since December 2019, with the closest being N25.27 billion recorded in June 2020.

The report showed increased momentum in foreign transactions at the Nigerian investment market with total FPI transactions rising by 104.04 per cent to N81.72 billion in October 2020 as against N40.05 billion in September 2020. FPI outflows or sales had also doubled from N26.05 billion in September 2020 to N56.44 billion in October 2020.

The report indicated nearly four percentage points improvement in foreign portfolio participation in Nigerian investment market from the previous position of about 29.7 per cent to current level of about 33.4 per cent.

The FPI report, coordinated by the Nigerian Stock Exchange (NSE), included transactions from nearly all custodians and capital market operators and it is widely regarded as a credible measure of FPI trend. The report uses two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy. While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.

Chief Executive Officer, Sofunix Investment and Communications, Mr. Sola Oni said the report showed that Nigerian shares remain attractive to foreign investors in final consideration of risks and returns inherent in investing in the country.

According to him, Nigeria remains a market where securities are largely undervalued, making it easy for foreign investors to mop up large quantity of shares.

“They study a country’s risk profile and its macroeconomic policy and key into sectors where they can make optimum returns. Foreign portfolio investors are birds for all seasons, they are speculators and therefore provide liquidity for every market,” Oni said.

He noted that with investment in Nigerian money market instruments and fixed income securities currently not attractive because of their low yield amid double-digit inflation, investors would naturally opt for quoted equities where they can generate better returns.

Inflationary rose to 34-month high at 14.89 per cent in November 2020, trending further upward from previous high of 14.23 per cent recorded in October 2020.

“At the moment, equity is about the major asset class that can meet investment objectives of many discerning investors. Our stock market is forward looking. Investors have realized that third quarter results of many companies have signaled better performance for the year-end results, which will begin to roll in as from early 2021. Therefore, sustained massive demand for equity is not unconnected with investors’ anticipation of higher dividend payout and possible declaration of bonus shares . Portfolio re-alignment is going on in favour of equity investment. We should also appreciate that investment in equity can be used as a hedge against inflation,” Oni said.

However, Nigeria’s net FPI position remains negative with more outflows than inflows, raising a strong possibility of a three-year consecutive negative position. Total inflows for the 10-month period ended October 31, 2020 stood at N200.59 billion as against outflows of N391.98 billion during the same period, representing a net deficit position of N191.39 billion. In the comparable 10-month period of 2019, total inflows and outflows had stood at N363.90 billion and N428.80 billion respectively.

Also, total FPIs for the 10-month period ended October 2020 stood at N591.97 billion, N200.67 billion below N792.64 billion recorded in corresponding period of 2019. Meanwhile total transactions, by both foreign and domestic investors, at the Nigerian equities market had dropped from N1.627 trillion by 10-month ended October 2019 to N1.581 trillion by 10-month ended October 2020.

Analysts at Cordros Securities said the decline in foreign investments might not be unconnected with Nigeria’s foreign exchange (forex) management.

According to analysts, Nigeria may not witness optimal foreign participation in domestic market until considerable policy actions that increase foreign investors’ confidence in the stability and liquidity of the naira.

Domestic investors had increased their participation in the Nigerian market for the second consecutive month to N163.18 billion in October 2020 as against N94.92 billion and N55.47 billion in September and August 2020.

– The Nation