Some foreign investors who abandoned Nigerian stocks are defying weak economic fundamentals to return to the country’s equity market, but it’s not all good as they are only pumping and dumping stocks.
Foreign investment inflows into Nigeria’s stock market jumped 37 percent to N47.73 billion in September, the highest so far since June 2018. However, almost the same value of investment was taken away by the foreigners in the review month.
Consequently, net inflows into the market, which stood at N5.98 billion in August, slumped to N1.01 billion in September. That’s the weakest in more than three years.
“The foreign investors are adopting a cautious and active trading strategy,” said Gbolahan Ologunro, an equity research analyst at CSL Stockbrokers, the investment arm of FCMB Group Plc. “This strategy involves buying when there are opportunities in the market and cashing out almost immediately.”
Nigeria’s economy continued to gasp for growth after it came out of a recession in 2017. The country’s stock benchmark index, the All Share Index (ASI), has dropped more than 16 percent since the start of this year after a 17.8 percent decline recorded in 2018, creating good entering points for investors in fundamentally sound stocks.
With foreign inflows of N34.92 billion in August 2019, foreign portfolio investment (FPIs) to Nigeria outweighed outflows of N28.98 billion for the first in one year prior to the period. The trend extended to September thereby flashing signs that the offshore players are taking advantage of cheap valuations.
“There have not been any fundamental changes to the weak appetite for foreign investors,” Ologunro said. “The foreign investors are looking for areas where they can see little opportunities and cash out after seeing mild gains.”
Foreign participation continued to account for a larger chunk of portfolio investment in the Nigerian Stock Exchange (NSE) compared with their domestic peers since July 2019.
Specifically, the proportion of foreign participation to total transaction improved to 66.77 percent in September from 52.38 percent in the previous month, while the involvement of domestic players plunged to 33.23 percent from 47.62 percent within the same period.
Consequently, the value of transactions performed by foreign investors in the NSE increased by 47.8 percent to N94.45 billion in September, dwarfing those carried out by domestic investors which shrank by 19.9 percent to N47 billion in the same period.
This brought the value of total transactions executed at the local bourse for the month to N141.45 billion, representing a 5.95 percent increase from N121.99 billion recorded in the previous month.
“On a monthly basis, the NSE polls trading figures from market operators on their Domestic and FPI flows,” the NSE said in its latest FPI report published on Monday. “In September 2019, the total value of transactions executed by foreign investors outperformed transactions executed by domestic investors by 34 percent.”
An analysis of domestic transactions reveals that institutional investors and retail investors executed the same share of domestic transactions in September. Retail transactions fell by 2.34 percent from N23.92 billion in August to N23.36 billion in September.
However, the institutional composition of the domestic market declined more significantly by 30.81 percent from N34.17 billion in August to N23.64 billion in September.
Over the last twelve years, domestic transactions decreased by 66.68 percent from N3.55 trillion in 2007 to N1.18 trillion in 2018 whilst foreign transactions increased by 97.88 percent from N616 million to N1.21 trillion over the same period.
Total foreign transactions accounted for about 51 percent of the total transactions carried out in 2018, whilst domestic transactions accounted for about 49 percent of the total transactions in the same period.
OLUWASEGUN OLAKOYENIKAN
