Operators in the Nigerian capital market have said that foreign investors that have been exiting the stock market in droves in the last couple of months will find their way back to the market following a successful conduct of presidential election. They, however, cautioned the local investors against herd investment, saying that their coming back will possibly fuel unnecessary price increases.
Status of foreign portfolio investment outflow on the Nigerian Stock Exchange, NSE, according to available data showed that total foreign outflow dropped to 51.08 percent in the month of January, 2015 from 53.36 percent in December 2014.
It went further down to 103.53 percent in the month of February, while year-to-date (January – February) the figure has dropped by 132.68 percent.
Monthly foreign portfolio investment, FPI, transactions at the Exchange which was N99.11 billion at the end of January 2015 increased to N133.95 billion (about $0.68 billion) at the end of February 2015, up 35.15 percent from January 2015. In comparison to the same period in 2014, total FPI transactions decreased by 1.71 percent, while the total domestic transactions decreased by 19.03 percent.
However, FPI outflows outpaced inflows which were consistent with the same period in 2014. Commenting on the outcome of the election in relation to foreign investment inflow to the Exchange, Bola Ajomale, Managing Director, NASD Plc, said the foreign investors would return to speculate on the secondary market.
“As speculators, they could come in, make a quick profit by driving up prices and exit very sharply, leaving local investors with high priced securities. It is therefore necessary for our local secondary market investing community to be more alert and proactive,” he said. “Secondly, I would love to see foreign investors come into the primary end of the market which is far more constructive and helpful to the economic progress of the nation.
It would be good if both public and private sectors encourage this to happen, Ajomale said. Speaking further, he said that the recent rally seen in the market is as a result of portfolio activity and not significantly improved corporate performance. He said: “The rapid rises we see in the market is just portfolio activity and not significantly improved corporate performance.
The market is doing a pretty good job at increasing transparency and corporate governance and I believe it would be advantageous if the President-elect encourages this philosophy through policy.”
Adding his voice, Mr. Tola Odukoya of Dunn Loren Merrifield Asset Management, said: “I believe the return of foreign investors has started already as indicated in the strong performance of the equity market specific government bonds in the last couple of days.” He observed that the key issue is for the country to maintain some appreciable consistency in several key policies that have contributed directly or indirectly to increase in direct and portfolio investments (by both domestic and foreign investors).
He added that the consequent bolstering and increase in confidence amongst investors will sustain, and possibly improve, the performance of the market.
Vanguard
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