Total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) have risen by 40.2 per cent to a five-month high of $3.04 billion as foreign investors stepped up demand for Nigerian assets.
The latest report on NAFEM obtained yesterday showed that the positive overall performance of inflows was driven mainly by increases in foreign portfolio and direct investments.
Nigeria’s foreign exchange (forex) reserves also at the weekend rose for the ninth consecutive week to $39.77 billion, an increase of $326.64 million during the week.
Data, obtained from the FMDQ Securities Exchange, indicated that total inflows into NAFEM rose from $2.17 billion in September 2024 to $3.04 billion in October 2024, an increase of 40 per cent and its highest figure in five months.
The increase was driven broadly by stronger inflows from foreign sources, compared to declines in domestic sources.
Inflows from foreign sources rose by 292.7 per cent from $345.50 million in September 2024 to $1.37 billion in October 2024, representing 44.6 per cent of total inflows during the period and the highest level in seven months.
Inflows from foreign portfolio investors (FPIs) had grown by 510.9 per cent, underlining the increasing participation of foreign investors in the Nigerian market. Inflows from foreign direct investments (FDIs) were also considerably high, rising by 44.6 per cent during the period.
However, collections from local sources, which accounted for (55.4 per cent of total inflows, dropped for the second consecutive month, from $1.82 billion in September to $1.69 billion in October, a drop of 7.5 per cent.
A breakdown showed declines across most segments of local collections. Collections from individuals dropped by 30.6 per cent, from CBN by 14.3 per cent while collections from non-bank corporates dipped by 8.6 per cent. Inflows from other corporate segment had also dropped by 15.1 per cent. Meanwhile, collections from exporters and importers inched up by 0.6 per cent.
With its ninth consecutive increase at the weekend, Nigeria’s forex reserves have risen by $6.858 billion so far this year and currently standing at its highest level in more than a year. The nation’s forex reserves had ended 2023 at $32.912 billion.
Market sources said the continuing accretion was due to improved investors’ confidence in the Nigerian market.
The increase at the weekend was due partly to purchases from foreign portfolio investors, who are currently trading at their highest turnover in five years.
The Nation reported that more than a double in foreign transactions and sustained upbeat by domestic investors pushed total transactions at the Nigerian stock market to its highest level by the third quarter 2024.
Official trading report showed that total transactions at the stock market rose to N3.97 trillion in the first nine months of this year, the highest third quarter turnover according to available official records of the market.
The 2024 performance represented a new record against the market’s turnover in third quarter 2023, when the market had set a high of N2.71 trillion. The closest records were in 2018 and 2014 when the market recorded N2.01 trillion and N2.04 trillion respectively.
The latest report also showed almost a double in the participation of FPIs in the Nigerian market, a situation that analysts attributed to the attractiveness of the Nigerian stocks and the relative liquidity occasioned by foreign exchange (forex) reforms.
The proportion of participation by FPIs increased from 9.51 per cent in third quarter 2023 to 17.56 per cent in third quarter 2024, the highest in the past three years.
Total foreign transactions at the Nigerian Exchange (NGX) grew by 170.1 per cent from N258.02 billion in third quarter 2023 to N696.88 billion in third quarter 2024, the highest in six years.
While forex differential contributed to FPIs turnover, domestic investors have also shown sustained strong appetite for quoted equities with a turnover of N3.27 trillion in third quarter 2024, higher than total transactions in previous years of the market. Total domestic transactions had stood at N2.45 trillion in third quarter 2023.
However, the increasing participation of foreign investors has reduced the proportion of domestic investors participation from 90.49 per cent in third quarter 2023 to 82.44 per cent in third quarter 2024.
Experts attributed the upbeat at the stock market to the increasing attractiveness of the Nigerian market to foreign investors, ongoing economic reforms, resilient earnings by Nigerian companies, exchange rate differential, ongoing banking recapitalisation and the reform in the oil sector.
Managing Director, AIICO Capital, Dr Femi Ademola, said Nigerian equities have become very attractive to both foreign and domestic investors.
“The equities market has become very attractive, mostly due to the devaluation of the currency which make the shares very cheap, especially to foreign investors. The very strong half-year performance reported by corporates especially banks and the corporate actions that followed the announcements have also driven many investors to the equities market. Finally, the lack of volatilities in the bond market makes it unattractive to investors, thus they flock to the equities market,” Ademola, a Chartered Financial Analyst (CFA), said.
Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the ongoing banking recapitalisation and the reforms in the oil sector have driven more investors to the market.
“We’ve seen increasing return of foreign portfolio investors, I understand the turnover by FPIs has grown significantly in the last few months. This can be attributed to the weaker naira that makes Nigerian stocks a bargain for FPIs. Secondly, new listings such as Aradel also boosted investors’ appetite for stocks.
This can also be seen in the light of the approval of the Exxon Mobil’s acquisition by Seplat by the Federal Government. Thirdly, the banking recapitalisation exercise along with impressive second quarter reports have continued to attract investments towards that sector,” Amolegbe, a former president of Chartered Institute of Stockbrokers (CIS), said.
Experts have said the steady build-up in foreign reserves would support naira’s stability in the meantime, providing a breather as government implements fiscal measures to boost the country’s crude oil and diversify the economy.
Ademola said increase in foreign inflows and participation implies that foreign portfolio managers are now more optimistic about the country’s economic prospects and are increasingly looking for opportunities to invest in Nigeria.
He said such stance could send a more reassuring signal to the markets and help to moderate the country’s foreign exchange (forex) position.
Amolegbe said the continuing increase in forex reserves will support government’s current efforts aimed at fostering liquidity and stability at the forex market.
“The increase is a positive signal for improved liquidity in the forex market. This should ultimately help to stabilize the exchange rate of the naira or even strengthen it against the dollar if the increase is steady and consistent,” Amolegbe said.
