Net outflow soar to N131bn in 5 months
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Increasingly, the disinterest and loss of enthusiasm of foreign investors in staking their fortune on equities at the Nigerians Stock Exchange (NSE) is alarming.
Already, their withdrawal from the market over the years has brought their local counterparts to the limelight as the golden sons of the market as they are now responsible for the overwhelming percentage of transactions at the bourse.
This is again supported by the latest foreign portfolio investment (FPI) report released by the NSE for the month May, in which 83.91 billion or 70.42 per cent of total deals at the exchange were executed by the locals.
While total transaction value for the month stood at N119.15 billion, portfolio investors pushed just 35.24 billion, representing 29.58 per cent of the total sum.
Out of the total transactions by the expatriates, the report showed an inflow of N18.43 billion and outflow of N16.81 billion, representing 52.3 per cent and 47.7 per cent respectively.
So far in 2020, May was the only month when the expatriates invested more capital than they pulled out from the economy via the capital market.
For instance, capital inflow stood at N23.81 billion in January while N46.50 billion left the market the same month and in February this year, a whooping sum of N52.37 billion was recorded as outflow against N18.97 billion inflow.
The share sell-off spree by foreign investors continued in March and April when only N22.49 billion and N20.98 billion were invested against N87.73 billion and N32.20 billion recovered respectively from the NSE.
On year-to-date (YtD) basis with N340.29 billion as total traded value by foreign investors, outflow has been more than double inflow, spiking commandingly at 235.61 billion or 69.24 per cent relative to N104 billion inflow in the five month period equivalent to 30.73 per cent.
Concerns for market watchers emanate in two ways. This is that as expatriates reduce their overall participation in the market, they have been more aggressive to leave Nigerian stocks more than ever, hence the sell-offs characterizing their participation so far.
Although, Year-to-Date turnover at the NSE increased from N790.31 billion in 2019 to N874.69 billion in the same period of 2020, the pattern of transactions with local dominance remained visible.
Nigerian investors carried out N534.39 billion worth of trades, representing 59.62 per cent higher than 51.02 trade share in the same period of 2019 with N414.25 billion.
Commenting on the matter, FBNQuest provided a stretched argument for the Nigeria equities, noting deterioration in the sentiment of portfolio investors.
“Our chart highlights the deterioration in the sentiment of foreign portfolio investors (FPIs) towards listed Nigerian equities over many months,” say analysts at FBNQuest.
They noted that the last net inflow goes back to September last year and was minimal at just N1 billion.
“The net outflow was highest at N66 billion in March 2020, which saw the spectacular and mercifully short-lived collapse of OPEC+’s accord on output restraint.
“In calendar years, their net outflow widened from N66 billion in 2018 to N104 billion in 2019,” according to them.
It is equally noted that turnover has again disappointed, averaging $11.4 million ytd this year at the I&E window rate (NAFEX) against $10.4 million in the comparable period in 2019.
“A good equities story requires both robust GDP/consumption growth and a pattern of market-friendly reforms by the government. Sadly, Nigeria offers neither and has not achieved a decent rate of GDP growth since 2014.
“Household spending has been squeezed, which undermines the case for consumer stocks. In these circumstances, an interesting new arrival on the NSE last year, namely MTN Nigeria, has underperformed,” the analysts observed.
Because of unsupportive metrics for investment decision in the Africa’s biggest economy, chosen frontier market for FPIs in Africa remains Egypt, according to experts.
Analysts lamented that it has become challenging to make an investment argument for Nigerian equities.
According to them, doing such would be constructed around the recovery in the oil price and global demand in recent weeks, along with the related easing of lockdowns in G7 economies and the IMF’s disbursement of $3.4 billion to help tackle Covid-19.
“It is worth noting that for a handful or two of quality stocks, the dividend yield is higher than the crashed yield on NTBs.
“A pipeline of well above $1 billion in delayed repatriations (mostly among fixed-income investors) clearly undermines the investment rationale for FPIs.”
They also revealed that in the typical week of 01 to 05 June, expatriate supplied just $15m to the I&E window. “Some would be more forgiving if the authorities had shared their thinking with them at the point of closing the window.”
