COVID-19 Hampers FPIs Investments in Nigeria’s Equities; Total Debt Hits USD27.40 Trillion in 2019…

Date:

Recently released report by the Nigerian
Stock Exchange (NSE) on domestic and
foreign portfolio participation in equities trading showed that total equities market transactions increased year to date (YTD) in February 2020 when compared to transactions done in the corresponding period of 2019.

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While transactions by domestic
institutional and retail investors increased significantly, those of foreign portfolio investors (FPIs) moderated as this category of investors chose to invest in fixed income securities for capital preservation, a decision which also led to the southward movement in yields of the fixed income securities.

For instance, treasury bills stop rates dropped for all the three maturities (91-day, 182-day and 364-day stop rates fell to 3.00%, 4.00% and 5.7% in February 26, 2020 from 10.9%, 13.09% and 14.37% in February 27, 2019).

Total transactions on the nation’s bourse increased to N383.67 billion YTD in February 2020 (from N310.16 billion recorded YTD in February 2019); of which FPI transactions decreased to N141.65 billion (from N165.79 billion).

However, total domestic transactions increased to N242.01 billion (from N144.37 billion).

Breakdown of the FPI transactions YTD in Feb. 2020 showed that foreign portflio outflows increased by 5.12% to N98.87 billion; however, the foreign portfolio inflows dropped by 40.37% to N42.78 billion.

Domestic institutional transactions spiked year on year by 77.57% to N130.89 billion YTD in Feb. 2020.

Also, retail investors’ interest in equities market were stimulated by lower share prices (as transactions from this group rose sharply to N111.11 billion in the period under review from N70.66 billion YTD in Feb. 2019).

Given the plunge in foreign portfolio inflows in the equities market and the increase in their outflows, the NSE All Share Index (ASI) declined by 2.33% to 26,216.46 index points on February 28, 2020 (from 26,842.07 index points on December 31, 2019).

In another development, total debt figure released by the Debt Management Office (DMO) showed that Nigeria’s total public debt stock for the fourth quarter of 2019 increased by 4.53% to N27.40 trillion in December 2019 (from N26.21 trillion in September 2019).

The increase in the country’s total debt stock was partly due to a rise in local debt stock by 2.42% to N18.38 trillion in December 2019 (from N17.94 trillion in September 2019) and the devaluation of Naira at the official window to N326/USD in December 2019 from N307.00/USD in June 2019.

Further breakdown of the domestic debt figure showed that Federal Government of Nigeria’s (FGN) domestic debt stock increased to N14.27 trillion in December (from N13.90 trillion in September); also, states’ share increased slightly to N4.11 trillion (from N4.04 trillion).

Domestic debt service payment plunged q-o-q by 58.14% to N254.04 billion in Q4 2019 from N606.87 billion in Q3 2019.

Similarly, external debt stock rose to N9.02 trillion (or USD27.68 billion at N326.00/USD) in December 2019 from N8.27 trillion (or USD26.94 billion at N307.00/USD) in September 2019.

Although external debt stock rose, external debt service payments fell to N81.53 billion (or USD250.10 million) in December 2019 from N145.50 billion (or USD473.94 million) in September 2019.

Nevetheless, total implicit interest rate, annualised, moderated to 7.57% in 2019 (from 9.22% in 2018).

We expect the year 2020 to be a challenging year even for investors amid the negative effect of the COVID-19 on the global economy.

Specifically, Nigerian economy appears to be more vulnerable as we expect further depreciation of the Naira against USD at the I&E FX Window given the sharp rise in foreign debt (158.21% to USD27.68 billion in 2019 from USD10.72 billion in 2015), crash in crude oil prices and the fall in external reserves.

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