Foreign buyers pull N846.5bn from Nigerian equity market

Foreign equity investors who approached the Nigerian stock market last year with N692.4 billion have pulled out N846.5billion, making an investment profit of N154.1billion through sales transactions and liquidation of their investments.

Those foreigners who are majorly portfolio investors in the Nigerian Stock Market accounted for 57.52% of transactions on the bourse, while 42.48% was by domestic investors.

“The air of uncertainty that hovered over the Nigerian capital market throughout 2014 caused investors to increasingly adopt a ‘flight to quality’ strategy,” Oscar Onyema, Chief Executive Officer (CEO), Nigerian Stock Exchange (NSE) said recently, while reviewing the stock market in 2014 and outlook for 2015.

Bearish segments prevailed for most of last year, as foreign investors steadily withdrew from the Nigerian market, due to currency risk, the recovery of developed economies, and the effects of the US Federal Reserve tapering of its quantitative easing (QE) policy.

The market recorded negative return of 16.14 percent in 2014 when most of the investors sold Nigerian securities because oil price boom came to a halt and there was a steep fall in oil prices that resulted in falling government revenue and devaluation of the naira.

In twelve-months ending in December 2014, total transactions at the nation’s bourse, increased by 41.83 percent from N181.97billion recorded in January to N258.08billion in December.

However total foreign transaction, increased by 47.68percent from N1.04trillion recorded at the end of 2013 to N1.54trillion at the end of 2014; while domestic transactions increased by 12.63 percent from N1.01trillion in 2013 to N1.14trillion in 2014.

    Also several macroeconomic developments contributed to the decline in market performance. These were fall in crude oil prices and related pressure on the naira; the impact of CBN’s monetary policy changes introduced at various points throughout last year; Nigeria’s declining foreign reserves; festering insurgency in the north-eastern part of the nation; uncertainty around the upcoming 2015 elections; and weak corporate earnings.

Onyema noted that despite the MSCI (a US-based provider of equity, fixed income, and hedge fund) Frontier Market Index rebalancing event in May 2014, which headlined an increase in Nigeria’s weighting in the index, this positive event was not enough to reverse the downward trend already prevalent in the market.

As the elections draw closer and Nigeria’s political environment gets hotter, analysts expect investor’s apathy towards equities to be more pronounced, leading to further sell-offs.

Iheanyi Nwachukwu