By Taofik Salako , Deputy Group Business Editor
More than seven out of every 10 transactions by foreign portfolio investors in the stock market are divestments as massive selloffs by foreign investors widened the gap between foreign portfolio inflows and outflows to a deficit of N56.09 billion over the past two months.
Foreign portfolio transactions now stand at a ratio of 73 per cent outflow to 27 per cent inflow, according to the latest data by the Nigerian Stock Exchange (NSE).
While the report indicated a marginal increase in foreign portfolio transactions, the increase was evidently driven by quantum leap in sales rather purchases.
Foreign portfolio deficit, the difference between inflows and outflows, widened from N22.69 billion in January 2020 to N33.4 billion in February 2020, representing a two-month deficit of N56.09 billion so far in 2020 compared with deficit of N22.31 billion recorded in the first two months of last year.
The foreign portfolio investments (FPIs) report, obtained at the weekend, indicated that the proportion of outflows to inflows, which stood at 66 per cent to 34 per cent in January worsened to 73 per cent to 27 per cent last month.
These imply a two-month year-to-date ratio of 70:30 so far this year compared with ratio of 57:43 recorded in comparable period of 2019.
The FPIs report, coordinated by the NSE, included transactions from nearly all custodians and capital market operators and it is widely regarded as a credible measure of FPI trend.
The report uses two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy.
Market analysts described the widening deficit as a “flight to safety”, citing weak domestic macroeconomic data, improved relative return in global markets and monetary management framework, especially foreign exchange management.
Foreign portfolio outflows totalled N52.37 billion as against inflows of N18.97 billion in February 2020. Total outflows and inflows had stood at N46.50 billion and N23.81 billion in January 2020.
Total foreign transactions had increased marginally by 1.46 per cent from N70.31 billion in January 2020 to N71.34 billion in February 2020.
On a two-month year-to-date basis, these indicated decline in total foreign transactions from N165.79 billion in the first two months of 2019 to N1141.65 billion in the first two months of this year.
Foreign portfolio outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE.
The latest report raises concerns over the FPI outlook for the market. Nigeria’s foreign portfolio deficit had worsened to N104.29 billion in 2019 as foreign investors offered to sell more of Nigerian assets than buying amid fears of political and macroeconomic uncertainties.
A full-year transactional report on FPI had indicated that foreign portfolio investors traded less on Nigerian equities and were more on the sell side than the buy side in 2019.
Total FPI inflows in 2019 stood at N419.13 billion as against outflows of N523.42 billion, representing a net deficit of N104.3 billion. Nigeria’s FPI had slipped into negative with a net deficit of N66.2 billion in 2018 after a world-leading stock market rally left the country with a surplus of N336.94 billion in 2017.
Read Also: Nigerian stocks lose N370b amid renewed selloffs
Total foreign inflows in 2018 stood at N576.45 billion compared with outflows of N642.65 billion. Foreign inflows had in 2017 outpaced outflows at N772.25 billion and N435.31 billion.
The 12-month report for the year ended December 31, 2019 showed that total FPI transactions declined by N276.45 billion from N1.22 trillion in 2018 to N942.55 billion in 2019. Both sell side and buy side declined but the sell momentum was stronger.
Total inflow dropped by N157.32 billion from N576.45 billion in 2018 to N419.13 billion in 2019 while total outflow declined by N119.23 billion from N642.65 billion in 2018 to N523.42 billion in 2019. Total FPI transactions for the 12-month period ended December 31, 2018 stood at N1.219 trillion as against N1.208 trillion recorded in 2017.
In the wake of the ravaging effect of the Coronavirus outbreak globally and the contagious effect on the country’s economic productivity and government’s oil-based revenue, most analysts at the weekend remained conservative about the outlook for the Nigerian stock market.
Senior Research Analyst, FXTM, Lukman Otunuga, said investors were uncertain about the policy mix of the Central Bank of Nigeria (CBN) in the midst of slowdown in foreign exchange earnings occasioned by crash in crude oil price, rising inflation and forex control regime of the apex bank.
Analysts at United Capital said crude oil prices might remain considerably low into the third quarter of the year, negatively impacting the economy.
Against this backdrop, analysts said Nigeria’s Gross Domestic Products (GDP) growth in first and second quarters of 2020 are likely to be weaker than expected, impairing 2.3 per cent growth earlier forecasted by United Capital for the year.
“Looking ahead, we still see sizeable legroom for further downslide in risk assets as investors continue to run towards safety in the face of the fast-spreading Coronavirus pandemic and the rout across global markets,” Cordros Capital stated in a post-trading comment on the outlook for the stock market.
Leave a Reply