By Nkiruka Nnorom
Foreign investors have withdrawn N94.09 billion from the Nigerian stock market in the first two months of the year as the equities market continues to tumble.
The total foreign outflow represents 56.7 percent of total foreign portfolio commitment in the stock market during the two month period and outpaced foreign portfolio inflow, which stood at N71.74 billion, by 23.8 percent.
Total foreign investors’ stake in the market stood at N165.8 billion within the period.
Breakdown of monthly foreign inflows, according to Data on Foreign & Domestic Portfolio Participation on the Nigerian Stock Exchange, NSE, shows that foreign outflows increased by 5.20 percent month-on-month (MoM) from N37.11 billion in December 2018 to N39.04 billion in January, while it rose by 41 percent MoM in February to N55.02 billion.
Analysts at United Capital Plc explained that the current risk-off sentiment in the market may have something to do with investor uncertainty, as markets are coming to terms with the policy implications (and the resulting impact on the macro-economy) of President Muhammadu Buhari’s re-election.
The firm in a report themed, “FPIs are selling Stocks but buying T-Bills & Bonds, Why?”, affirmed that the recently concluded full year 2018 earnings season, as well as the reduction in the monetary policy rate (MPR), have failed to support or trigger a bull run in the stock market, adding that investors probably want to see bold policy moves that can put Nigeria on the path to a more sustainable long-term growth.
Looking ahead, the analysts said: “Over 2018, many investors withdrew from emerging and frontier markets (Nigeria inclusive) and bought more assets in the US due to the spike in US bond yields, as well as the appreciating dollar. Worsened by election uncertainty, the Nigerian equity market saw a net foreign outflow to the tune of N66.2 billion over 2018, compared to net foreign inflows of N336.9 billion in 2017.’’
“Against the backdrop of a better balance of risk this year and considering the extreme valuation differences between Nigeria (9.2x) and the rest of the world (FM: 11.5x, EM: 12.4x and the world: 16.9x), 2019 should see more funds flow back to Nigeria – especially after elections. Nevertheless, we expect any potential upside to be capped because the structural reform follow-through that can put Nigeria on the path to a more sustainable long-term growth is missing.”