16 January 2015, Lagos – Foreign investors, alarmed by the economic and political risks in the country, pulled out N793.17bn from the Nigerian Stock Exchange between January and November 2014.
The figure represents 67.5 per cent increase on the N473.61bn foreign portfolio investment outflow from the stock market in the corresponding period of 2013.
According to capital market analysts, the exit of foreign investors from the equities market was a major reason for its poor performance in 2014 during which the market closed with a negative return of 16.14 per cent.
The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, had in November explained that the devaluation of the naira in the face of the declining prices of crude oil was expected to, among other things, check the outflow of the FPI.
Rewane, who said before the devaluation of the currency, foreigners were selling their shares in order to take their money out of Nigeria, added that “now that the value has been established, that will stop.”
The second largest monthly FPI outflow of N116.5bn in the review period was recorded that month and the outflow has continued with stocks already down by up to 17 per cent this year.
The Chief Executive Officer, Highcap Securities Limited, Mr. David Adonri, explained that the sustained sell-off and outflow was as a result of the unexpected continued decline in the prices of crude oil in the international market and increasing political risks in the country.
Reviewing the performance of the stock market in 2014, the Chief Executive Officer, NSE, Mr. Oscar Onyema, confirmed that the outflow was a major factor in the poor performance of the market.
He told journalists in Lagos on Wednesday, “In the capital market, bearish sentiments prevailed for most of the year as foreign investors steadily withdrew from the Nigerian market due to currency risk and the recovery of developed economies, and the effects of the US Federal Reserve tapering of its quantitative easing policy.”
He added that the air of uncertainty that hovered over the Nigerian capital market throughout 2014 caused investors to increasingly adopt a ‘flight to quality’ strategy.
The impact of the foreign investors and their activity on the market has prompted several market analysts to call for efforts to be made to ensure that Nigerians, who are less likely to flee the market in times of crisis, dominate it.
As of November 2014, despite the sell-off, foreign portfolio investors accounted for 58.51 per cent of equity transactions, with domestic investors making up the balance.
The Chief Executive Officer, Enterprise Stockbrokers, Mr. Rotimi Fakayejo, called for more Nigerian participation in the equities market.
“If we have as much as 70 per cent local investors on the Nigerian bourse, then definitely, whenever there is any surge internationally, which may force foreign portfolio investors to retract whatever investment they have made in Nigeria, the Nigerian local investors will have sufficient capacity to absorb that shock and take up that excess liquidity of stock at any point in time,” he said.
Onyema, who said the rising value of the dollar might continue to precipitate foreign portfolio investment reversals, which remained a real threat to the Nigerian capital market, assured stakeholders that the Exchange would continue to work towards increasing domestic participation in the market.
– The Punmch