Foreign investors flowed out nearly a double of every penny they invested in the Nigerian stock market and Nigerian investors showed less enthusiasm amid concerns over the performance outlooks of dominant banking stocks.
A latest report on foreign portfolio investment flow by the Nigerian Stock Exchange (NSE) indicated unusually high disparity between foreign portfolio inflow and outflow, which led to significant decline in net foreign investment in the stock market.
According to the NSE’s report, recent filings showed that 66 per cent of the total value of foreign transactions were outflows- sale orders, a situation that led to about 42 per cent decline in net foreign investment in the stock market.
The foreign portfolio investment report showed considerable month-on-month slowdown in both the total foreign transactions and foreign portfolio inflow while there was an increase in outflow during the period.
The seven-month report for the period ended July this year, the latest available data, indicated that total foreign inflow stood at N31.81 billion as against outflow of N61.90 billion in July, showing the widest divergence between inflow and outflow so far this year.
Total foreign transactions thus slowed to N93.71 billion in July as against N150.24 billion in the previous month. However, foreign investors remained dominant in stock market’s transactions with 62.53 per cent of the aggregate foreign-domestic transactions in July, an increase on 51.13 per cent recorded by foreign investors in June.
With the outflow in July, net foreign investment declined from about N73 billion in June to N42.59 billion in July.
Total foreign inflow had risen to N90.15 billion while outflow stood at N60.09 billion as total foreign transactions increased to N150.24 billion in June.
Total foreign transactions in the market for the seven-month period stood at N676.25 billion, 50.73 per cent of aggregate transactions of N1.33 trillion by foreign and domestic investors during the period. Breakdown of foreign transactions during the seven-month period showed inflow of N359.47 billion as against outflow of N316.88 billion. Nigerian investors accounted for N656.85 billion over the seven months.
Foreign investors had capitalised on general market optimism in July ahead of the release of the first half earnings reports of quoted companies to monetise and rebalance their portfolios. Nigerian equities had consolidated their bullish rally in July with capital gains of some N581 billion. Aggregate market value of all equities closed July at N12.007 trillion as against its opening value of N11.426 trillion for the month. The All Share Index (ASI), which doubles as benchmark index for all equities on the NSE and country index for Nigeria, also rose from month’s opening index of 36,164.31 points to close at 37,914.33 points, a month-month average positive return of 5.08 per cent.
First-half report on foreign portfolio investment flow had shown that total transactions-including buy and sell deals, by foreign investors totaled N582.64 billion, accounting for 49.24 per cent of total turnover at the NSE during the period.
The report had indicated that in most instances, foreign investors flowed in more funds than they took out, leaving the stock market with a positive net foreign investment of about N73 billion within the period. Foreign portfolio inflow stood at N327.66 billion as against outflow of N254.98 billion.
Total turnover value at the NSE during the first half was N1.18 trillion with both foreign investors and domestic investors dominating transactions in three months each. But while foreign investors had maintained gradual and steady increase and decline in portfolio adjustments, indigenous investors showed large fluctuations.
They dominated the market in the first two months and were supplanted by foreign investors in March and April. They regained dominance in May and were displaced by foreign investors in June.
Foreign investors accounted for 36.89 per cent, 39.65 per cent, 52.78 per cent, 64.48 per cent, 48.68 per cent and 51.13 per cent in January, February, March, April, May and June.
Portfolio transactions by foreign investors totaled N61.46 billion, N75.97 billion, N80.14 billion, N122.97 billion, N91.86 billion and N150.24 billion in January, February, March, April, May and June.
The report underlined the structural outline of Nigerian investors, which was largely skewed in favour of institutional investors. For instance, institutional Nigerian investors accounted for 66.7 per cent or N95.78 billion of domestic investors’ turnover in June 2013 while retail investors contributed 33.3 per cent or N47.81 billion.
The report had shown stronger momentum in foreign portfolio investments in the stock market as the 2013 first half report was substantially above six-month average over the past five years.
Foreign investors staked about N4.08 trillion on quoted shares on the NSE between 2007 and 2012. Foreign investors had gradually and consecutively increased their investments in Nigerian equities from about 15 per cent of total market turnover in 2007 all through till a high of about 67 per cent in 2011.
Foreign portfolios were particularly the main drivers of transactions on the NSE in the past two years, with foreign investors accounting for average of two-thirds of equity transactions between 2011 and last year.
The report underlined the early positioning of the foreign investors, who had saw through the prospects of Nigerian equities amidst the downtrend and the rampant herd instinct of the domestic investors, who mostly usually look at recovering market.
Foreign portfolio transactions increased from N615.6 billion in 2007 to N787.4 billion in 2008. These trimmed down to N424.6 billion in 2009 before rising consecutively to N577.3 billion and N847.9 billion in 2010 and 2011 respectively. Foreign portfolio trades stood at N808.4 billion in 2012. With these, the two-way flow of foreign portfolio investments showed that while foreign investors flowed in about N2.01 trillion during the period, they equally took away about N2.17 trillion.
Market pundits said the investment flows at the stock market might underline concerns over the future earnings of banks, following a generally low fundamental performance in the first half. Most banks reported marginal growth in profit in the first half as they struggled with reduced income streams and high cost of funds and operations induced by new regulations by the Central Bank of Nigeria (CBN).
Banks remain the dominant subsector at the NSE, although reduction in number of quoted banks and increased capitalisation of non-bank multinationals have reduced the hitherto overbearing influence of banking stocks on overall market situation.
Managing Director, Cowry Asset Management Limited, Mr Johnson Chukwu, said the market situation at the stock market might not be unconnected with concerns over future earnings of banks given that banks have been the dominant stocks at the market.
He said the lukewarm operational earnings of banks will reflect on their share prices as investors priced in expected muted performance into banks’ valuations.
“There are 31 stocks that have been driving the market this year, banks account for 15 of these 31 stocks. So, if banks’ prices begin to go down, you are going to see decline in market performance and I think that is what we are seeing in the recent past,” Chukwu said.
