Foreign portfolios drop to new low

Foreign portfolios drop to new low

By Taofik Salako, Deputy Group Business Editor

  • Forex scarcity bites
  • Outlook still cloudy

Foreign portfolio investments (FPIs) have dropped to a 29-month low as macroeconomic concerns and global anxieties continued to suppress foreign participation in the market.

Official FPI report obtained at the weekend indicated that total FPIs dropped to N35.24 billion last month, its lowest month-on-month record in the past 29 months.

Total FPIs included inflows and outflows. While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation


The FPI report, coordinated by the Nigerian Stock Exchange (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.

The total FPI of N35.24 billion recorded in May 2020, the latest figure, represents a major decline from a high of N192.95 billion recorded within the 29-month period. The report however showed the first FPI surplus in eight months with inflows more than outflows.

Chief Executive Officer, Sofunix Investment and Communications Limited, Mr Sola Oni, said foreign portfolio investors usually consider risk-return trade off and take cognizance of country risk as they seek markets with optimal returns.

According to him, foreign portfolio investors are quick to embark on flight to safety anytime they perceive threats to their investments, thus their largely speculative orientation. Foreign portfolio investors meanwhile help to enhance the liquidity and efficient price discovery in a market.

Read Also: Nigeria’s foreign portfolio deficits widen by 356% to N121.3b in Q1

“The FPI has been on gradual decline in Nigeria due largely to uncertainties in the operating environment. But at the moment, it is directly traceable to their inabilities to repatriate their money back home with ease due to relative scarcity of foreign exchange,” Oni, a chartered stockbroker and commodities trader, said.

He however expressed optimism that attractive valuation may spur FPI participation in the market, noting that the running undervaluation at the stock market presents opportunity for domestic and foreign investors to take positions in stocks with strong fundamentals and prospects for good returns.

Senior Research Analyst, FXTM, Lukman Otunuga, at the weekend, said Nigeria’s economic outlook remains clouded, citing global and domestic challenges.

“It is fair to say that the outlook for Nigeria remains clouded by the coronavirus chaos with the economy expected to shrink by 3.2 per cent, according to the World Bank. But the country is not alone as other emerging market and developed nations may suffer a similar fate,” Otunuga stated.

After inflation rose to a 25-month high at 12.40 per cent last month, most analysts said they expected continuing rise in inflation rate. Analysts at Cordros Securities estimated that inflation may rise to 12.54 per cent this month.

Afrinvest Securities stated that uptrend in inflation will continue as consumer prices more fully reflect the lean agriculture season, the recent adjustment in value added tax (VAT), exchange rate devaluation, the resumption of more economic activities and fuel and electricity price adjustments.

“In our opinion, risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions. Thus, we continue to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks,” Cordros Securities stated in a weekend outlook on the domestic market.

Analysts’ reports indicated that for the third successive week, the Central Bank of Nigeria (CBN) at the weekend recorded another reserve drawdown as foreign exchange outflows outpaced inflows. Foreign reserves dropped by $119.25 million last week close weekend at $36.33 billion. The Naira depreciated against the dollar at both the official and parallel markets. The Naira depreciated by 0.19 per cent to N387.75/$ at the Investors & Exporters (I & E) window and by 1.1 per cent to N455.00/$ at the parallel market.

“For us, the widening current account (CA) position suggests that odds are stacked against the naira. Beyond that, as the economy gradually reopens, the resumption of foreign exchange sales to the Bureau de Change (BDC) segment of the market will place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet foreign exchange demand,” Cordros Securities stated.

Further analysis of the FPI report indicated that FPI inflows and outflows stood at N18.43 billion and N16.81 billion, representing a surplus of N1.62 billion. Total FPIs recorded so far these past five months stood at N340.29 billion, 9.51 per cent or N35.76 billion below N376.05 billion recorded in comparable period of 2019.

The recovery from deficit position to surplus meanwhile represented a major turnaround for the market. The Nation had reported that Nigeria’s FPIs deficits- the difference between inflows and outflows within a specified period, worsened from N26.61 billion in first quarter of 2019 to N121.33 billion in first quarter of he year. The deficits of N121.33 billion in first quarter of 2020 represented 16.4 per cent increase on N104.29 billion recorded in the whole of 2019.

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