The recent fiscal and monetary changes have rekindled hope about the prospects of a brighter economic climate in the past two months among foreign investors, it was learnt yesterday.
Latest report on foreign portfolio investments (FPIs) released by the Nigerian Exchange (NGX) showed an all-positive mark for the investment market, with increased transactions by foreign and domestic investors.
Foreign portfolio investors were also retaining more funds in the Nigerian market, reversing the negative situation in the previous months when there were more outflows than inflows.
Total foreign transactions rose by 70.1 per cent in the second quarter of 2023 as against the first quarter, driven by 197.5 per cent increase in inflows.
FPIs net status- the difference between outflows and inflows-changed from a deficit of 49 per cent in first quarter to a surplus of 43.9 per cent in second quarter.
The performance in the second quarter was driven largely by a dramatic recovery in foreign interest in May, which continued in June, supporting equally ecstatic performance by domestic investors.
The NGX noted that the positive market performance came “amid the bounce of a new administration and raft of changes in government policies”.
The report indicated that retail domestic transactions increased by 40.70 per cent from N88.50 billion in May to N124.52 billion in June 2023, showing that more individual Nigerians were optimistic about the economy despite the immediate challenges that greeted major policy changes. Institutional composition of the domestic market increased by 19.9 per cent from N197.26 billion in May 2023 to N236.49 billion in June 2023.
Market analysts were unanimous that the stock market performance has been in response to President Bola Tinubu’s policy direction, with a consensus that the direction would significantly uplift the economy and drive foreign and domestic investments in Nigerian assets.
Tinubu, sworn in on May 29, 2023, has in less than two months started the implementation of key policy initiatives, including the removal of the hemorrhaging petrol subsidy, abolition of multiple foreign exchange windows that saw almost 300 basis points arbitrage between official and parallel market rates and introduction of a comprehensive food security plan that aims at achieving self-sufficiency and enhancing non-oil exports as major source of forex.
Total FPIs transactions rose from N53.71 billion in first quarter to N91.37 billion in the second quarter. FPIs inflows tripled from N18.12 billion in first quarter to N53.9 billion in the second quarter. Total FPIs outflows, which had stood at N35.59 billion against inflow of N18.12 billion in first quarter, was less significant at N37.47 billion against an inflow of N53.9 billion in the second quarter.
Month-on-month analysis showed that total transactions at the NGX rose by 26 per cent from N322.92 billion in May 2023 to N406.75 billion in June 2023. Total foreign transactions increased by 23 per cent from N37.16 billion in May to N45.74 billion in June. Total domestic transactions remained upbeat, rising from N285.76 billion in May to N361.0 billion in June 2023.
The dearth of foreign inflows has been identified as one of the main reasons for Nigeria’s foreign exchange (forex) crisis, which reached a peak in April 2023.
The FPI report, coordinated by the NGX, 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 equities market and the economy. While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.
When inflows outweigh outflows, it simply means foreign investors are buying more quoted equities than they are selling and when outflows outpace inflows, it implies that foreign investors are selling more of their investments than buying more investments. Thus the position of FPI surplus or deficit.
NGX pointed out that “total foreign transactions in the first four months of 2023, stood at N62.18 billion owing to the soaring inflation, prolonged foreign exchange (forex) scarcity as well as uncertainties building up to the 2023 elections”.
The Nation had reported a dramatic recovery in FPIs from a record low in April to its highest level in one and half years in the immediate period of Nigeria’s political transition in May 2023.
The report, for the period ended May 2023, showed that total FPIs increased from a record low of N8.47 billion in April 2023 to N37.16 billion in May 2023, its highest since June 2022. The total FPI in April was the lowest in recent years amidst anxieties over the political transition.
FPI inflows- which represent the buy side of the transactions, jumped from a record low of N3.67 billion in April 2023 to N27.51 billion in May 2023, its highest since November 2021. FPI outflows- the sell side, recorded a slower increase of 101.04 per cent from N4.80 billion to N9.65 billion.
Nigerian stock market had launched into a major rally on the first trading day after the May 29, 2023 inauguration, with net capital gains totaling N1.51 trillion, its highest gain in a day in two and half years. The benchmark index for the market, the All Share Index (ASI), posted average return of 5.23 per cent, its highest gain since November 12, 2020.
The gain by ASI, a value-based index that tracks all quoted shares at the NGX, was equivalent to N1.51 trillion. The rally, on the first trading day after Tinubu’s inaugural address, had pushed average year-to-date return for Nigerian equities to 8.77 per cent, putting Nigeria back on the world’s chart of top stock market returns. Aggregate market value of all quoted equities had crossed the N30 trillion mark to N30.349 trillion on the first post-inauguration trading day, as against N28.844 trillion recorded as opening value.
