For­eign in­vestors trade cau­tiously on Nige­rian stocks amid FX un­cer­tainty


For­eign in­vestors con­tin­ued to play on the side­lines of Nige­ria’s eq­uity mar­ket in June as cur­rency vo­latil­ity risks dis­cour­aged the off­shore play­ers from tak­ing ad­van­tage of cheap val­u­a­tions.

In the first six months of the year, for­eign in­vestors ac­count for a mea­gre 39.52per­cent of trans­ac­tions on the mar­ket as against 45.84per­cent in the first six months of 2019. On the other hand, do­mes­tic in­vestors took ad­van­tage of the rel­a­tively cheap pric­ing to take po­si­tion in bell­wether stocks thereby ac­count­ing for 60.48per­cent of to­tal trans­ac­tion in the first six months of the year, com­pared to 54.16per­cent in the same pe­riod in 2019.

A fur­ther anal­y­sis show that to­tal for­eign trans­ac­tions in­creased by 59.88per­cent from N35.24 bil­lion in May to N56.34 bil­lion in June while to­tal do­mes­tic trans­ac­tions de­creased by 13.55% from N83.91bil­lion in May to N72.54 bil­lion in June 2020.

Speak­ing on the re­duced par­tic­i­pa­tion of for­eign in­vestors in the eq­ui­ties mar­ket, Yinka Ade­muwa­gun, fixed in­come & eq­uity an­a­lyst at United Cap­i­tal said for­eign in­vestors would con­tinue to play on the side­line due to un­cer­tainty in for­eign ex­change out­look.

“There is a lot of op­por­tu­ni­ties in the mar­ket as most of the stocks are cur­rently un­der­priced but the fact that the FX un­cer­tainty can wipe off their gains would con­tinue to keep for­eign in­vestors on the side­lines, those who are cur­rently in the mar­ket are find­ing it dif­fi­cult to pull out their funds and this would dis­cour­age oth­ers from com­ing,” he said.

The Cen­tral Bank has con­tin­ued to main­tain cap­i­tal con­trol pol­icy re­sult­ing in illiq­uid­ity for cur­rent for­eign in­vestors to pull out their funds, while man­u­fac­tur­ers are find­ing it dif­fi­cult to ac­cess the green­back to import raw ma­te­ri­als.

In March, it sus­pended fx sales to re­tail cur­rency traders, it also moved the rate for BDC to N380 to the U.S dol­lar from the pre­vi­ous N360. It sub­se­quently ad­justed the naira’s of­fi­cial rate to N360 weaker than its pre­vi­ous peg of N306, im­ply­ing a 15per­cent de­val­u­a­tion. It de­val­ued the of­fi­cial ex­change rate ear­lier this month to N381 per dol­lar from N360

As at 30 June 2020, to­tal trans­ac­tions at the na­tion’s bourse in­creased by 8.17% from N119.15bil­lion in May 2020 to N128.88bil­lion in June 2020. The performanc­e of June 2020 when com­pared to the performanc­e in June 2019 ( N297.25bil­lion) re­vealed that to­tal trans­ac­tions de­creased by 56.64%. In June 2020, the to­tal value of trans­ac­tions ex­e­cuted by Do­mes­tic In­vestors out­per­formed trans­ac­tions ex­e­cuted by For­eign In­vestors by ap­prox­i­mately 12%

Lo­cal in­sti­tu­tional in­vestors how­ever out­per­formed re­tail In­vestors by 10%. A com­par­i­son of do­mes­tic trans­ac­tions in June and May 2020 re­vealed that re­tail trans­ac­tions de­creased by 23.35% from N42.19 bil­lion in May 2020 to N32.34 bil­lion in June 2020. Whilst the in­sti­tu­tional com­po­si­tion of the do­mes­tic mar­ket also de­creased by 3.64% from N41.72 bil­lion in May 2020 to N40.20 bil­lion in June 2020.

Ac­cord­ing to Ade­muwa­gun, the risk ap­petite of do­mes­tic in­sti­tu­tional in­vestors such as Pen­sion and in­sur­ance com­pa­nies are not that mas­sive com­pared to for­eign in­vestors.

“Re­tail in­vestors are quick to take profit, once they make 10-11per­cent in­crease they are very quick to take out that profit un­like for­eign in­vestors who stay longer with big risk ap­petite be­cause of the vol­ume of fund,” he said.

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