NIGERIA (CWBN)_ On Wednesday, a new study by the Nigerian Stock Exchange (NSE) revealed that foreign investors took a total of N433.15 billion out of the country’s stock market from January to November of this year, compared to N481.96 billion in the same span of 2019. In its domestic and international portfolio evaluations, the NSE announced that foreign market inflows have fallen to N226.13 billion year-to-date from N 397.44 billion in 2019. Foreign portfolio investment outflow involves disposal transactions or the liquidation of portfolio assets on the capital exchange, while the FPI inflow includes acquisition transactions on the NSE based on details. The country’s stock market’s total trades rose by 29.77 percent from N244.90 billion (about $634.55 million) in October 2020 to N317.81 billion (about $813.87 million) in November 2020.
The NSE announced that now the overall volume of transactions carried out by local investors surpassed international investors’ transactions by around 58 percent in November. It claimed that total local trades increased by 53.51 percent from N163.18 billion in October to N250.50 billion in November. However, total foreign transactions declined by 17.63 percent from N81.72 billion (about $211.75 million) in October to N67.31 billion (about $172.38 million) in November. Per the report, institutional investors outpaced retail investors by 16%. It further reported that retail sales rose by 52.10 percent from N69.94 billion in October to N106.38 billion in November. “The domestic market’s institutional composition increased by 54.57 percent from N93.24bn in October 2020 to N144.12bn in November 2020”. The overall international transactions carried out between January and November amounted to approximately N659.28 billion instead of the total domestic transactions of N1239.62 billion.
The Head of Macroeconomic Research at EFG Hermes, Mohamed Basha, stated that Nigeria’s foreign exchange shortage rendered international firms reluctancy of bringing their capital to the region. He went on to acknowledge that Nigeria’s economy had undergone a very challenging 2020 period, suffering from a double-dip recession of oil prices and a pandemic scare that reflected poorly on the nation’s financial and real economy. He went on to say, “FX shortages emerged, with a parallel market that’s trading at a +20 percent premium to official rates; fiscal space was eaten up, and the economy fell into recession”.
He mentioned that inflation had risen to an almost three-year peak, primarily fuelled by food costs in yet another threat to the already weak buying power. He said, “Going into 2021, we see the macroeconomic situation remaining challenging, notwithstanding some improvements.”
“The recovery in oil prices to $50 per barrel already by end of 2020 and prospects for a slightly higher price in 2021 is definitely good news for the economy and should help avail more resources for both the government and the Central Bank of Nigeria.”
Basha noted that, however, amid higher oil prices, the nation will still be running low on foreign exchange reserves and unable to match the more secure atmosphere that prevailed back in 2017/18.
He went on to add, “Then, the market was relying on carry trade flows – foreign flows into the local debt market – to provide excess liquidity in the system, but this trade now has low prospects of recovery, given the very low level of interest rates the country is now offering in addition to FX shortages which make foreign investors wary of sending their money to Nigeria.”
Basha also mentioned that the Nigerian government had gone through many promising adjustment initiatives, such as the deregulation of domestic fuel prices and the naira’s depreciation.
