Outflow from NSE continues for 2nd year in a row as foreign investors flee risk assets
Foreign investors’ appetite for Nigerian securities appears to be abating as foreign outflows from Nigeria’s capital market exceeded inflows for the second consecutive year in 2019.
The Nigerian Stock Exchange’s Domestic and Foreign Portfolio Investment Report 2019 published by the Nigerian Stock Exchange shows that foreign outflows from the country was as high as N523.42 billion Naira in 2019, compared to an inflow of only N419.13 billion. This translated to a net outflow in foreign investment in the capital market of up to N104.29 billion.
The investment loss trend has now worsened for the second year in a row after Nigeria moved from a net foreign inflow of funds in 2017 by around N336.94 billion to a net outflow position in 2018 of N66.2 billion.
In 2018, Nigeria saw foreign outflows of N642.65 billion compared to foreign inflows of just N576.45 billion, representing a net outflow of about N66.2 billion. Analysts told BusinessDay that the net capital outflow was triggered by preelection selloffs which caused stock prices to collapse and foreign investors to repatriate their funds due to increased political risk in the country.
Since the Nigerian Stock Exchange All Share Index began to trend downwards in January 2018, it has barely been able to recover as the poor stock performance has led to increased market selloffs and more foreign capital repatriation from our capital markets.
Since reaching the 45,000 mark, the All Share Index has declined precipitously to just 28,067 points at close of market last Friday, representing a stock market decline of about 37.7 percent due largely to a total net foreign outflows of N170.4 billion over the last 2 years in the Nigerian capital market as well as the increased political and economic risks in the country.
Foreign investors dash for the exit doors in the local bourse is also having an impact on the foreign external reserves as more and more foreign outflows from the country is gradually depleting Nigeria’s foreign reserves. In the last 7 months, Nigeria’s external reserves has now dropped by up to $7 billion, causing investors to worry that a possible devaluation of the currency may be at hand in order to protect the external reserves from further depletion.
In July 2019, foreign external reserves rose to a multiyear high of $45 billion but has since dropped to $37.7 billion as at February 2020. Analysts have now told BusinessDay that the speed of capital flight out of the country could still increase due to low confidence that Naira will remain stable despite continued declines in the foreign reserves.
While the stock market has risen about 4.5 percent year to date, analysts opine the buying pressure may be domestic led as investor’s position for dividend payments in the coming months. If foreign investors continue to abscond Nigeria’s capital market in mass, the investment community and Central Bank of Nigeria may soon have a large problem on their hands.