Nigeria records negative foreign investment flow

In from Success Allantee …

Foreign portfolio investors have so far this year taken out more funds than they invested as investors weighed political and macroeconomic risks.

The seven-month report for the period ended July 31, 2015 indicated that foreign investors accounted for 54.21 per cent of total transaction value during the period but the larger proportion of foreign portfolio transactions were outflows rather than inflows. The preponderance of sale transactions to buy transactions by the foreign investors left Nigeria with a deficit FPI position of N28.38 billion.

Total foreign portfolio outflow stood at N362.42 billion over the seven-month period, representing 52.04 per cent of the total foreign portfolio transactions of N696.46 billion. Total foreign inflow totaled N334.04 billion, 47.96 per cent of total foreign flow. Domestic investors accounted for N588.36 billion, 45.79 per cent of the market’s total transaction of N1.28 trillion during the seven-month period.

The FPI report, which is coordinated by the Nigerian Stock Exchange (NSE), used two key indicators-inflows and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy.

Foreign portfolio investment outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE. The NSE report is generally regarded as a credible gauge of foreign portfolio investments in Nigeria as it coordinates data from nearly all active and major investment bankers, stockbrokers, custodians and other capital market operators.

In what appeared to underline the steep decline in the stock market in July, foreign portfolio outflow-inflow analysis showed considerable increase in FPI, but the transactions were more of sales than purchases. Total transactions in July stood at N170.83 billion, consisting of N107.47 billion from foreign investors’ transactions and N63.36 billion from domestic investors, a ratio of 62.91 per cent to 37.09 per cent. Foreign transactions however included N58.83 billion outflow and N48.64 billion inflow, indicating a deficit of N10.19 billion.

In July, the benchmark index for the Nigerian stock market indicated average month-on-month decline of 9.79 per cent. This extended the seven-month return at the market to -13 per cent. The All Share Index (ASI), the common value-based index that tracks prices of all quoted companies on the NSE, which also serves as Nigeria’s sovereign equity index, closed July at 30,180.27 points as against 34,657.15 points recorded at the beginning of this year, representing a decline of 4,476.88 basis points or 12.92 per cent. Aggregate market value of all quoted companies also followed the same downtrend; dropping from its year’s opening value of N11.478 trillion to close July at N10.344 trillion, indicating capital gain loss of N1.13 trillion.

The seven-month FPI report is broadly in line with the half-year report, which had shown that about 52 per cent of total foreign transaction value were divestments. Foreign investors, who dominated the Nigerian capital market, had taken out more funds than they invested in the first half as investors waited for the political transition and clear macroeconomic and monetary policy direction of the new government.

Total foreign portfolio investment outflow in the first half stood at N303.59 billion as against inflow of N285.40 billion, representing a deficit of N18.2 billion. The half-year deficit represents a relatively larger value given the significant undervaluation of the Nigerian equities and the extended deficit Nigeria had suffered since 2013.

Read also: Foreign portfolio transactions hit N589b in first half

Nigeria had recorded a net foreign portfolio deficit of N154.14 billion in 2014, overriding a modest positive net flow of N20.48 billion recorded in 2013. The 12-month foreign portfolio investment report for 2014 had shown that foreign portfolio outflow was N846.53 billion as against inflow of N692.39 billion in 2014. In 2013, total foreign inflow stood at N531.26 billion compared with outflow of N510.78 billion.

The six-month report for the period ended June 30, 2015 showed that foreign portfolio investors accounted for about 53 per cent of total transaction value during the period while domestic investors accounted for 47 per cent. Total transactions stood at N1.114 trillion, with domestic investors accounting for N525 billion.

The report however showed a month-on-month recovery in June. Total foreign inflow stood at N42.67 billion as against outflow of N26.98 billion in June, totaling N69.65 billion. Total transactions stood at N203.45 billion, with domestic investors contributing N133.80 billion. The foreign-domestic ratio stood at 34.24 per cent/65.76 per cent in June.

The 12-month foreign portfolio investment report for 2014 had shown that foreign portfolio outflow was N846.53 billion as against inflow of N692.39 billion in 2014, representing a net deficit of N154.14 billion. In 2013, total foreign inflow stood at N531.26 trillion compared with outflow of N510.78 trillion, leaving a positive balance of N20.48 billion.

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