22 September 2015, Lagos – The dwindling attraction and returns in the country’s stock market caused foreign portfolio investors to pull out N410.49bn from the equities segment of the Nigerian Stock Exchange between January and August this year.
Data obtained from the NSE showed that just as was the case last year, foreign investment outflow exceeded inflow in the first eight months of 2015.
Foreign investors had pulled N846.53bn from the stock market last year although they invested N692.39bn, a development that caused the NSE All-Share Index to close with a negative return of -16.14 per cent.
This is because the market is dominated by the foreign investors. They accounted for 57.52 per cent of total transactions in 2014.
In the first eight months of this year, foreign investment inflow was N367.10bn, which was N43.39bn less than outflow.
Despite the reported exit of many foreign investors from the stock market and expectations that domestic investors would take advantage of low stock prices, foreign investors still dominated the market, accounting for 54.36 per cent of the N1.430tn transactions in equities as of August.
Further review of the participation statistics showed that foreign portfolio investment outflow exceeded inflow in six of the eight months under consideration.
Inflow exceeded outflow in April, as investor confidence rose after the peaceful conduct of the presidential election, and in June following the change in government. Year-to-date, the NSE All-Share Index has a negative return of -12.40.
The N1.430tn transactions recorded in the equities segment of the NSE in the first eight months of this year was, however, 5.8 per cent or N88bn less than the N1.518tn transactions recorded in the same period of 2014.
The Head, Investment and Research, Sterling Capital, Mr. Sewa Wusu, said, “A combination of factors has actually been affecting the Nigerian economy and by extension we have seen reactions in the financial markets generally. They are headwinds that investors would naturally react to because of the fear of eroding the value of their investment.”
He, however, said that did not mean that the Nigerian economy did not have potential as it were, stressing that what was affecting the economy was a global problem as oil prices were down and commodity prices were tumbling.
According to him, now that the political risk has fizzled out, it is time for the government to face the economy squarely.
This, he said, was because “most investors are just exiting to preserve their capital and wait for the tide to clear because they cannot just make investment decisions when there is no clarity in the macroeconomic space.”
On why domestic investors have not taken full advantage of the low stock prices, the Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, explained that the domestic investors in the market were majorly Pension Fund Administrators, with private investors lacking access to credit.
“And if you look at the portfolio of the PFAs, you will see that they are getting underweight in equities; they are shifting much more of their funds to Federal Government Treasury Bills and bonds, which simply mean that they have more faith in the fact that interest rates would go up further,” he said.
Stressing that no dividend yield was as high as bond yields, Chukwu added, “We are in an economy where because of unclear economic policies, you cannot say that equity prices will rally.”