In an obvious sign of investor apathy, foreign portfolio investors cut down their stake in Nigeria’s equities market by more than 66 per cent in the half-year period that ended June 30.
From $901.3 million invested in the corresponding period in 2021, the portfolio investors cut down equities investments to $301.89 million as of June 30, 2022, indicating a 66 per cent decline.
Investors, since the beginning of the year, have been cautious in the equities market following uncertainties that have forced investors to move to other sectors with higher yields.
Last October is an instance of a period when investors took a hit with the steep tumble of the market capitalisation of the Nigerian Exchange (NGX) plunging by over N2.5 trillion, about the worst negative returns on equities investment in one single month since after the 2008 market crash.
The build-up to the dip in the market cap in October may have been pooling momentum from early in the year.
InsideBusiness’ analysis of Capital Importation data for the second quarter (Q2’2022) indicated that while the foreign investors reduced equities investments, they increased capital inflow into the banking sector by 47 per cent to $1.46 billion in H1’22 up from $1 billion in H1’21.
Similarly, foreign capital inflow into the financing sector rose by 26 per cent to $396.67 million from $315.11 million in H1’21.
The data obtained from Nigerian Exchange also indicated that the inflow to the production sector rose the most during the period under review while the inflow to shares declined the most.
Inflow into the production sector rose by 83 per cent, year-on-year to $457.66 million in the first half year ended June 2022 (H1’22) from $245.22 million in the corresponding period in 2021.
Furthermore, the share of inflow to the production sector rose to 14.7 per cent in H1’22 from 8.9 per cent in H1’21, representing a 6.1 percentage point increase.
On a quarter-quarter basis, the flow into the production sector rose by 4.6 per cent to $233.99 million in Q2’22 from $223.67 million in Q1’22.
Analysts at Afrinvest have predicted a further decline in foreign capital inflow into the country by year-end citing the heightened risk environment associated with pre-election activities.
In a report titled: “Nigerian Banking Sector Report: Brace for Impact,” the analysts said that the inflow would decline to $5.9 billion in H1’22 from $6.7 billion in 2021, representing 11.9 per cent decrease.
They noted that the unsuccessful attempt by the Central Bank of Nigeria (CBN) to convince the market to accept its exchange rate management strategy has continued to have a negative impact on foreign capital flows.
“Despite the over 30 per cent increase in the average price of crude oil to $104.62/bbl over the 12 months to September 2022, Nigeria’s foreign reserves which peaked at $41.8 billion in October 2021 (supported by proceeds from SDR: $3.5bn and Eurobond: $3.bn) fell to $38.3 billion at the end of Q3:2022. Based on our estimate of unsettled obligations (c.$8.0bn), actual reserves could be below c.$32.0bn,” the analysts wrote in the emailed report.
Continuing, the report stated: “While the pressure points on the foreign exchange (FX) reserves cannot be entirely blamed on the CBN, it has not convinced the market to accept its exchange rate management strategy. This has had a negative impact on foreign capital flows. For instance, foreign capital flows that peaked at $24 billion in 2019 fell to $9.7 billion and $6.7 billion in 2020 and 2021, respectively.
“Given the disappointing $3.1 billion inflows recorded in H1’22 and the heightened risk environment due to pre-election activities, our base case estimate suggests an annualised inflow of about $5.9bn in 2022,” the analysts concluded.