…as total transactions crash by 19.92 percent
. Analysts blame devt on persistent devaluation of Naira
Ngozi Amuche
As a number of companies and economies begins to react to the impact of the coronavirus pandemic, the Nigerian Stock Exchange has recorded N25.67bn loss in foreign investments within one month.
This is indicative of the fact that the NSE is one of the biggest casualties in the financial community, which has been particularly volatile in recent weeks.
Already, foreign Portfolio Investment inflow to the Nigerian economy recorded massive decline in the first seven months of 2020 (January-July) amidst growing negative macroeconomic numbers.
Total transactions of both foreign and domestic investment also decreased by 19.92percent, to N103.21bn in July 2020, from N128.88bn in June.
Analysis on the exchange’s domestic and foreign investment showed that the NSE has lost close to N3trn since the outbreak of the pandemic in the middle of January 2020, and by March, the Capital market lost $1.8bn through divestments by foreign portfolio investors.
Also, the bear runs triggered by fleeing foreign investors following dwindling oil demand and consequent falling price induced by the pandemic has crowded out massive gains recorded by banks quoted on the stock market.
Investigation by 1stnewsonline.com revealed that the performance of the current month, when compared to the performance in July 2019, showed that total transactions plummeted by 9.04 percent and the total value of transactions executed by domestic Investors outperformed transactions executed by foreign Investors by roughly 32percent.
A further analysis of the total transactions executed between the current and prior month (June 2020) also showed that total domestic transactions decreased by 5.40percent from N72.54bn in June to N68.62bn in July 2020.
However, total foreign transactions declined sharply by 38.60percent from N56.3bn (about $90.89m) to N34.59bn (about $89.00m) between June and July 2020, while institutional investors outperformed retail Investors by 6percent.
A comparison of domestic transactions in the current and prior month of June 2020 revealed that retail transactions increased marginally by 0.62percent from N32.34bn in June 2020 to N32.54bn in July 2020.
CBN INTERVENES
Although the Central Bank of Nigeria’s intervention in the market after the calamitous fall of the naira was momentary and the foreign portfolio investors knew it would not last, the CBN lacked the financial muscle to defend the naira at N360 to the dollar.
Even as the CBN vowed that it had no plans to devalue the naira, the regulator suddenly stormed the foreign exchange market with a four per cent devaluation of the naira, which took the Investors & Exporters (I&E) window exchange rate to N380 to the dollar, down from N360.
Many had hoped that the four per cent devaluation of the naira would placate foreign portfolio investors to leave their investments at the NSE as they can now buy more shares with their intimidating dollars, but the precipitous bear run at the NSE has defied the devaluation of the naira.
On Monday, August 31, 2020, the bear run in the NSE took another bewildering turn as market capitalisation decreased by N259.2bn.
On the other hand, the institutional composition of the domestic market dropped by 10.25percent from N40.20bn in June 2020 to N36.08bn in July 2020.
The actual performance referenced shows that total foreign transactions carried out year till date is about N431.22bn whilst total domestic transactions year-to-date is about N675.55bn.
EXPERTS COMMENT
Market pundits contend that the devaluation of the naira was not deep enough to convince investors to leave their money on the NSE.
A Professor of Economics, Marvin Obademor, said there were fears that the CBN might devalue the naira again by the fourth quarter of the year, if the coronavirus pandemic continued unabated.
“The consequence of CBN’s feeble financial muscle in the foreign exchange market is that Nigerians should brace for surging inflation as the purchasing power of the naira ebbs with repeated devaluations,” he said.
The Executive Vice Chairman of Highcap Securities Limited, Mr. David Adonri, said, “The prospects of Nigeria’s economy do not give confidence to foreign investors hence their exit.
‘‘The figures above reflects decline of foreign investors’ confidence. Nigeria lacks the capacity to surmount current economic challenges and investors have seen the government running helter-skelter to obtain foreign loans that will not facilitate economic recovery faster.
“With exit of foreign investors, hard currency inflow will plummet, causing further decline of Naira. Foreign investors detest anything that will devalue local currency. Nigeria is entering a deadly period of stagflation, which may persist till 2021.”
An investment banker, Mr. Kehinde Olusola, said going forward, “we expect FPIs to retain their apathy towards Nigerian equities; however inability to get FX may continue to force reinvestments as we have been observing in recent months. That said, we expect locals will continue to drive the market as we begin to see a flurry of Open Market Operation (OMO) and T-bills maturities in the final months of the year which we expect to boost liquidity.”