Latest update on foreign portfolio transactions at the stock market showed that foreign investors are staking more on Nigerian equities than they are taking out.
For the first time since the beginning of this year, the foreign portfolio investment (FPI) report by the Nigerian Stock Exchange (NSE) showed positive net foreign inflow as foreign portfolio inflow outpaced outflow. The report showed a hearty but modest reversal of the sustained downtrend that has seen a built-up of deficit foreign transactions in previous months.
The report indicated that total foreign inflow rose to N54.20 billion in April as against outflow of N49.75 billion, representing a modest positive net inflow of about N4.45 billion. Total foreign transactions thus stood at N103.95 billion as against total domestic transactions of N102.91 billion during the month.
The latest report represented a positive shift for the market. In March, foreign portfolio outflows of N52.41 billion outpaced inflows of N50.15 billion.
The report used two key indicators-inflow 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 regarded as a credible gauge of foreign portfolio investments in Nigeria as it coordinates data from nearly all active investment bankers and stockbrokers.
The report also showed marked improvement in domestic participation in the stock market as risk-averse investors left the sidelines to drive the bargain-hunting that characterised the month. Domestic transactions, which had stood at N81.46 billion in March, added N21.45 billion to close April at N102.91 billion.
Altogether, total foreign transactions in the past four months stood at N439.57 billion, including sales transactions of N234.84 billion and buy transactions of N204.73 billion. Domestic transactions accounted for N325.52 billion out of the cumulative transaction of N765.09 billion recorded within the four-month period.
The first quarter had seen steady foreign portfolio deficits as investors weighed macroeconomic and political risks. Foreign outflows totaled N81.60 billion in February 2015 as against inflow of N52.35 billion, indicating a significant increase on the downtrend that started the year when foreign portfolio outflow was N51.08 billion against inflow of N48.03 billion.
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.
Market analysts attributed the renewed interest in Nigerian securities to the positive spillovers of the national and state elections. On the heels of the elections, major foreign and Nigerian investment firms placed “buy” on several Nigerian stocks, a reference to the reduction in the political risk and the attractiveness of Nigerian equities, most of which had been undervalued by sustained depreciation over the past 15 months.
Exotix, a global investment firm, described the successful conduct of the election and the emergence of Buhari as “unprecedented positive”.
“A broadly effective voter card system, largely peaceful voting days, generally orderly announcement of results, concession of defeat and most importantly, the win for the opposition candidate, comprise a remarkable, unprecedented and positive presidential election in Nigeria,” Exotix stated.
The firm noted that some macro level concerns which have driven Nigeria to underperform all major frontier markets have thus been removed. Exotix subsequently raised its recommendation for Nigerian stocks, especially banking and consumer goods companies.