For the first time in five years, foreign investors bought more Nigerian stocks than they sold in 2022, data collated by BusinessDay have shown.
But it is no cause for cheer as foreigners were forced to reinvest their dividends and sales proceeds into securities because they could not get dollars to repatriate their funds, stock market analysts said.
Africa’s biggest economy has been grappling with a dollar shortage since 2016 when it slipped into its first recession in over two decades induced by the oil price collapse that started in mid-2014 and the sharp decline in its production of the commodity.
Nigeria saw a net foreign inflow of N12.29 billion into its stock market last year, compared to a net outflow of N24.74 billion in 2021, according to data from the Nigerian Exchange Limited (NGX).
It marked the first net inflow of foreign funds into the market since 2017, when a record N772.25 billion entered and N435.31 billion exited.
Foreign investment into the stock market has been on a downward trajectory in the last five years. Last year, the inflow fell to N195.76 billion, the lowest in at least 13 years, NGX data show. It was down 75 percent compared to what it was in 2017, when the country emerged from recession, while the outflow dropped by 58 percent to N183.47 billion.
“I think what was responsible for what we saw last year was FX illiquidity; a lot of them (foreign investors) were not able to repatriate their funds and they were forced to reinvest dividends,” Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest, said. “They did not necessarily bring in new money, based on capital importation data.”
The latest capital importation data from the National Bureau of Statistics show that portfolio investment in equities plunged by more than 60 percent to $44.5 million in the first half of 2022 compared to a year earlier.
Ebo said the inability of foreigners to take out their money might have supported the performance of the market, but “we won’t say it’s overall a positive signal for the economy if investors are unable to repatriate their funds”.
He highlighted the need for monetary policy to support the market in order to attract more foreign inflows. “FX liquidity is key in providing confidence,” he said.
Rotimi Fakayejo, a Lagos-based economic and capital market analyst, said foreign investors had to plough back sales proceeds into the market, switching from one stock to another, because of the difficulties in getting foreign exchange to repatriate their funds.
“It is likely that there was a pile-up of money they couldn’t get out, which was reinvested and also when opportunities came for a profitable sale, they moved the money back into the market,” he said.
“It was not possible to actually repatriate funds. Even for airlines, many of them are still on a long queue at the CBN for them to be able to repatriate their ticket proceeds,” he added.
In November last year, Emirates Airlines announced plans to suspend operations into Nigeria indefinitely owing to its inability to repatriate its funds trapped in the country. The International Air Transport Association said in December that total airline funds blocked from repatriation in Nigeria was $551 million.
Fakayejo said foreign outflows from the stock market had been exceeding the inflows in recent years because of loss of investor confidence in the market amid naira depreciation and other factors scaring away investors.
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“If you look at the foreign exchange rate in the past few years, you will see that the naira has been on a downward trend, and if you bring $100 million at a time, and naira gets devalued by about 20 percent and you make a net gain on your portfolio of 15 percent, you are still at a loss. So, this didn’t give encouragement to investors,” he said.
The Nigerian stock market finished stronger last year, with a return of almost 20 percent, defying a bumper hike in the benchmark interest rate and pre-election tensions.
Temi Popoola, chief executive officer of NGX, said in January that the total turnover of trades in 2022 improved by 27 percent to N1.16 trillion year-on-year, adding that “market participation was heavily skewed to the domestic investors”.
“When you look at other investment windows, no one is as encouraging as dividend yield from the equities market,” said Fakayejo when asked about the drivers of the continued rally in the Nigerian stock market.
“The last bid of Treasury bills, I think for 90 days, it was 2 percent; for 180 days, I think it was 4 percent. So, when you look at stocks in the banking sector and few other sectors, the dividend yield in them is not less than 8 percent, and the prices are not dropping as they used to do. So, it is better for you to just put your money there; even if there is no appreciation, you earn dividends,” he added.
Analysts at CSL Stockbrokers linked the low foreign portfolio inflows in Nigeria to the heightened global investment risks, the hawkish monetary stance of the advanced economies and the naira-dollar exchange rate volatility.
They said not only has the exchange rate been volatile, the CBN has also not been “liquid enough to timely meet foreign currency demands by foreign investors who need to repatriate their investment proceeds”.