Foreign and domestic investors have invested an estimated N2.6 trillion in the stock market in half year (H1) 2024 amid rising inflation rate and the Central Bank of Nigeria’s (CBN) attractive returns on government securities.
This is about a 79.5 per cent increase above the N1.45 trillion traded in H1 2023.
With inflation reaching its peak in Nigeria, the apex bank regulation has increased its monetary rate to 26.75 per cent, resulting in over 20 per cent yield on one-year Nigerian Treasury Bill (NTB) and FGN Bonds.
The latest Nigerian Exchange Limited (NGX) “Domestic & foreign portfolio participation in equity trading” report, revealed that domestic investors still dominated the stock market in H1 2024, transacting about N2.06 trillion, above the N1.31 billion in H1 2023.
Foreign investors stake about N540.48 billion in H1 2024 as against N145.08 billion, thus underlining the effect of the foreign exchange reforms by the present administration of President Bola Tiinubu.
Tinubu had expressed that he could have chosen to keep the previously multiple foreign exchange system and benefit from it, rather, he unified the official and parallel market rates to save the country from a financial crisis. This decision was implemented when the CBN on June 14, 2023, merged the various segments of the foreign exchange market, implying that the exchange rate will rise or fall based on the supply and demand in the market.
The report by the Exchange revealed that of the N2.6 trillion transactions, foreign investors’ contribution increased to 20.75 per cent in H1 2024 from 10 per cent in H1 2023, leaving the domestic investors comprising retail and institutional contribution to fall to 79.25 per cent in H1 2024, down from 90 per cent reported by the Exchange in H1 2023.
As retail investors stake N999.21 billion in H1 2024 from N410.49 billion in H1 2023, institutional investors transact about N1.06 trillion in H1 2024 from N895.54 billion in H1 2023.
In terms of inflow, foreign investors flow reached N229.07 billion in H1 2024 from N72.02 billion in H1 2023, while outflow increased significantly to N311.41 billion in H1 2024 from N73.06 billion reported by Exchange in H1 2023.
Analysts said the reforms by the Tinubu administration “are good for the economy and in the long run are good for markets”.
The Vice President of Highcap Securities, David Adnori in a chat with INSIDEBUSINESSNG stated that the foreign exchange policy of this present administration has restored confidence in the stock market with foreign investors’ massive participation.
Adnori stated that the emergence of Tinubu as president further energised the stock market since market participants had confidence in his ability to rejig the economy and implement economy-friendly policies.
Adnori was also optimistic that the stock market might maintain its positive momentum in the second quarter of 2024, against the backdrop of banking sector recapitalisation that is expected to trigger investors’ for the rights issues currently on offer from listed banks.
“We need foreign investors at the same time, we need local investors to dominate the stock market. The mixed exposure of our local market is creating room for liquidity to flow and price discovery which is what the stock market is all about,” he said.
Analysts at Coronation Asset Management in a report titled, “Investment Opportunities from FX Liberalisation”, said foreign investors were still a significant factor in the Nigerian stock market in 2017; much less now, although recent data showed a net inflow of foreign investment into the stock market.
They noted that the monetary authorities were also able to engineer market interest rates above the rate of inflation, something to which investors usually respond positively “This begs one question about the second half of 2023 when one wondered the way the interest rates were moving.
“A liberalised foreign exchange rate points to elevated interest rates to make it worthwhile holding money in naira. Fuel subsidy removal, effective May 31, 2023, suggests that cost pressures will push inflation upwards, and this is also responsible for elevated interest rates.
“Against this, the All-Progressives Congress (APC) manifesto proposed low interest rates to encourage economic growth. We do not know, at this stage, how the APC administration and the CBN will resolve this critical area of policy.
“On the bright side, the removal of fuel subsidies and the liberalisation of the naira foreign exchange rate are historic events and will themselves straighten out much of the dysfunctional economic behaviors we have become accustomed to,” Coronation stated.
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