Financial analysts have linked the dwindling inflow of foreign investments in the Nigeria Stock Exchange (NSE) over the past few months to fears by investors of likely poor yield or returns on such investments.
Specifically, they said that as the COVID-19 continued its disruptive impact on businesses globally, foreign investors were not eyeing the bourse for new investments, resisting reduced valuations on some of Nigeria’s biggest companies and also concerned that a shortage of dollars may restrict their ability to realize any profits.
Commenting on the development, Temi Popoola, the Head of Renaissance Capital’s local unit, said: “Foreigners are net sellers and locals are net buyers, as assets look very cheap in naira terms. If you are a foreign investor, you still have the currency risk. It is not clear what direction we are going.”
According to data from the FMDQ OTC Securities Exchange, the Lagos-based platform that oversees foreign-exchange trading, foreign investors’ purchases of Nigerian stocks and bonds dropped to $266 million in March and the first half of April, the lowest since the Investors’ and Exporters’ Foreign Exchange Window was opened in 2017.
Local investors are positioning for dividend payments from Nigerian blue-chip companies, unworried by the paucity of foreign exchange, caused by the crash in crude oil prices and the coronavirus pandemic.
Analysts at CSL Stockbrokers Limited, said: “We believe the intensified sell-off by foreign investors was due to the elevated global risk aversion for EM/FM assets, triggered by the outbreak of the global pandemic.
Stocks at the exchange have just wrapped up their best week since January, but it’s no thanks to foreign investors. The country’s benchmark index jumped 7.2% last week, closing out a seven-day rally.
The sell off by foreign investors pushed the share prices of major bellwethers to historic lows, providing an attractive entry point.
Also, dollar trading has remained quiet in Nigeria’s interbank foreign exchange market, while foreign exchange reserves have dwindled 12% this year to $33.9 billion.
An analyst at Old Mutual Investment Group in Cape Town, Randolph Oosthuizen, was quoted as saying that the outlook for foreign interest in Nigerian equities would depend partly on how the government sets about to revive the economy from the ravages of the coronavirus.
He stated: “The next few quarters will be very difficult for Nigeria, but we await more granular information on policy responses. New inflows will in large part probably be based on how these are received by the market.”