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Insurance recapitalisation:Foreign investors crowding out domestic investors

By Peter Egwuatu

There are indications that the recent upsurge in Foreign Portfolio Investment, FPI, in the nation’s stock market is driven by the ongoing recapitalisation exercise in the insurance sector.

Some stock market dealers told  Financial Vanguard  that the foreign investors are taking advantage of low share prices of some targeted insurance firms in the Nigerian Stock Exchange, NSE, to strengthen their positions in the bid to acquire majority stakes in those firms.

 

Insurance
The floor of Stock exchange

The NSE, last week,  announced that total transactions at the nation’s bourse for both the domestic and foreign portfolio investment    increased  by  7.5 percent to  N121.99  billion (about  $398.0  million)  in August  2091   from N113.47  billion (about  $370.4  million) in July  2019.

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It stated further that in  August, the  total value  of transactions executed by  foreign  investors outperformed transactions  executed by domestic  investors by  4.00 percent.

Reacting to this development, the spokesperson for Independent Shareholders of Nigeria, ISAN, Mr Moses Igbrude said: “Foreign portfolio investments can only flow into the country if those informed investors perceived a sign of stability and hope in economy and that will be a welcome development. The increase by foreign transactions could also be that those foreign investors are buying off those insurance companies with lower prices and are recapitalising.”

Commenting, the Chief Operating Officer, InvestData, Mr. Ambrose Omoriodon, said: “Since the meltdown and crash of the stock market in 2008/2009, the foreign portfolio investors have dominated the NSE which has been one of the factors the market has been unstable. The number of local players are less than 10 million in a population of 200million.   This is attributed to  lack of investment education and low savings culture.

“The NSE investment report for August shows that foreign portfolio  investors are more than domestic investors because they are taking advantage of the  prevailing low prices to position themselves, since local investors  are struggling as a result of weak economy and purchasing power as well as low liquidity.”

The Chairman, Progressive Shareholders Association of Nigeria, PSAN, Mr  Boniface Okezie, said: “Over the years now the foreign portfolio is almost ahead of local investors but with frequent changes in economic policy, I doubt whether it will be sustained going by inconsistency in our policy making decisions on the lager economy and regulatory framework where every  one of them want to rake in money to the government by all means.

Reacting as well, the National Chairman, New Dimension Shareholders Association of Nigeria, Mr. Patrick Ajudua, said: “The declining economy, apathy to investment, competing domestic demand and low purchasing power occasioned by increase in poverty level are root cause why foreign portfolio investors surpass domestic ones.”
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