In the seven months to July 2014, offshore portfolio investors pulled out N426.37billion from the stock market through sales transactions or outright liquidation of their portfolio investments, BusinessDay investigations reveal.
This amount represents 55.98% of foreign portfolio transactions, valued at N761.57billion made within same period. Inflows, which include purchase transactions on the Nigerian Stock Exchange (equities only), accounted for the balance at N335.2 billion.
Foreign investors are major buyers of Nigerian equities but recent trends, including the country’s rising socio-political risks, as well as low returns, are among reasons for the ceding of the greater percentage of their equities holdings to domestic equity buyers.
Some analysts said yesterday that the action was capable of lowering the tempo of activities at the market, with the further depressing of the prices.
The development may have enhanced the position of the local investors, which led to their accounting for 74.83 percent of total equities transactions in July, leaving the remaining 25.17 percent for their foreign counterparts.
“Foreign Portfolio Investors (FPI) ceded about 49.66% of trading to domestic investors as foreign transactions decreased significantly from 49.28% to 25.17% over the same period.” according to the broker dealer regulations department of the Nigerian Stock Exchange.
“Uneven growth and recovery dynamics, divergent monetary policy direction amongst high-income countries, bullish trends in global equity securities markets, a strengthening tone in emerging –market currencies and heightened socio-political instability, were the primary factors influencing capital flows in global financial markets,” according to investment analysts at CBO Capital, a Lagos-based leading Investment and Project development firm.
A breakdown of their transactions show that in January 2014, offshore investors withdrew N50.14billion from the Nigerian stock market, while inflow from them was N39.53billion.
In February they pulled out N103.53billion from the equities market against an inflow of N32.75billion.The situation wasn’t different in March, as these investors took away N75.42billion from the stock market, against N55.13billion they used to buy equities at the local bourse.
In April, they invested N65.06billion in Nigerian equities but took away N73.73billion; in May, they invested N41.27billion but took away N50.59billion.
The situation changed in June, when N68.78billion came into the equities market as inflow from foreign investors, while they pulled out only N49.22billion; in July, N32.68billion was invested in Nigerian equities but only N23.74billion was taken out of the market.
“Moderation in global liquidity by US Federal Reserve drove a sell-off similar to Emerging Markets (EMs) in January, but failure to participate in the ensuing broad-based recovery the following month, on account of the suspension of then CBN governor in February, dampened appetite for naira assets.
The latter event which coincided with the worst monthly performance (2.1%) of the NSEASI thus far in 2014 saw FPI outflows hit an all time peak of N104billion,” said investment analysts at ARM, a Lagos-based asset management firm.
These analysts noted in their outlook that “the looming shadow of the 2015 elections, which sees H2’ 2014 mined with heightened politicking as a slew of presidential, gubernatorial and legislative primaries occur, increases the uncertainty in an already close-to-call contest.
“That said, in the resumption of co-movement between NSEASI and related global/EM indices, we see some scope for residual foreign buying power to provide support. Nonetheless, amid increasing insurgency activity, the heated political climate stacks up the odds against higher foreign portfolio investment (FPI) activity, given recent trends in South Africa, India and Indonesia in the run-up to their elections,” ARM analysts added.
Foreign investors are major buyers of Nigerian equities but trends have shown that recently, they ceded a reasonable percentage of their equities holdings to domestic equity buyers, giving Nigeria’s rising socio-political risks as reasons.
In first-half (H1), market watchers observed how the equities market was characterised by moderate profit taking and bargain hunting activities. But overall, stock market performance picked up late in Q2.
In July, domestic investors accounted for 74.83% of total equities transaction, while foreign investors were responsible for only 25.17%. Though Year-to-Date (YtD), foreign investors accounted for higher proportion of equities transactions at the Nigerian stock market, representing 55.06% while domestic investors represented 44.94%.
Iheanyi Nwachukwu
