Expatriates’ access to forex’ll spell doom for equities, say market analysts

THE STATE OF THE NIGE RIAN ECON OMY is getting increasingly delicate with inverse reactions among economic indicators in response to policy and actions of the government.

This has reached a new height as fiscal and business analysts maintained that any attempt to ease the current biting foreign exchange scarcity will spell doom for the equities market.

They base their stance on the fear that foreign portfolio investors in the equities market would swiftly leave the local capital market once they have access to dollars to repatriate their funds from the country.

The global economy is still struggling to heal from the blow of Coronavirus. Nigeria’s economy has its problem doubled as it relies on dollar earnings to sustain its local currency, naira, and facilitate importation, among others.

For the equities market, participation of foreign investors is important, and their withdrawal, a situation being currently experienced, worries local market players.

Oscar Onyema, chief executive officer of the Nigerian Stock Exchange (NSE) stated recently that more than 60 per cent of trades at the local bourse is now controlled by local investors.

Although the apathy of the expatriates has become alarming overtime, they are still hanging around because getting forex for repatriation and for them to make an eventual exit is now a hard nut to crack.

Market watchers said while waiting for dollars, the majority of them put their money back into the equities market and that this was responsible for the rebound in April, May and partially June.

Analysts noted that investor sentiment was soured by the recent Morgan Stanley Capital International (MSCI) review that placed Nigeria on a watchlist due to FX illiquidity.

“Thus, we expect miniTHE mal activities from index fund managers, while we expect that any resumption of FX sale to FPIs could trigger a strong sell-off of equities,” analysts at FSDH Merchant Bank Limited said to emphasise envisaged reaction of expatriates to forex access at the moment.

Similarly, analysts at Investdata Consulting Limited, led by Ambrose Omordion explained that while foreign investors were waiting and saw that the market was almost at the lowest, hitting an 11-year low, they came back to take position, and so, the market rebounded.

“For me, when they see any opportunity, they are ready to leave but in the long run, they are likely to come back to our market because if you look at all the frontier markets in the world; our market is one of undervalued markets in the frontier markets. “For that, there is still the possibility that they are coming back, and in fact, most of them would not go because they see that there are still opportunities here,” he said.

Data from the NSE show that increasingly, the disinterest and loss of enthusiasm of foreign investors in staking their fortune on the Nigerian equities has become alarming.

Already, their withdrawal from the market over the years has brought their local counterparts to the limeAccordingly, light, dominating transactions with overwhelming percentage at the bourse.

This reflected in the latest foreign portfolio investment (FPI) report released by the NSE for the month May, in which 83.91 billion or 70.42 per cent of total deals at the exchange were executed by the locals.

While total transaction value for the month stood at N119.15 billion, portfolio investors pushed just 35.24 billion, representing 29.58 per cent of the total sum.

Out of the total transactions by the expatriates, the report showed an inflow of N18.43 billion and outflow of N16.81 billion, representing 52.3 per cent and 47.7 per cent respectively.

So far in 2020, May was the only month when the expatriates invested more funds than they pulled out from the economy via the capital market.

For instance, capital inflow stood at N23.81 billion in January while N46.50 billion left the market the same month; and in February this year, a whooping sum of N52.37 billion was recorded as outflow against N18.97 billion inflow.

The share sell-off spree by foreign investors continued in March and April when only N22.49 billion and N20.98 billion were invested against N87.73 billion and N32.20 billion recovered respectively from the NSE.

On year-to-date (YtD) basis with N340.29 billion as total traded value by foreign investors, outflow has been more than double inflow, standing at 235.61 billion or 69.24 per cent relative to N104 billion inflow in the five month period equivalent to 30.73 per cent.