N1.77 trillion has been pulled out from the nation’s stock market in the last two years, by foreign investors, citing insecurity and economic uncertainties. Many blue-chip companies quoted on the stock exchange also experienced huge losses within the period.
Specifically, N435.31 billion in foreign portfolio investment outflow was recorded in 2017, while foreign investors withdrew N642.65 billion during the corresponding period in 2018.
In the same vein, foreign transactions accounted for about 51 per cent of the total transactions carried out in 2018, while domestic transactions constituted about 49 per cent during the same period.
Operators at the weekend expressed concern on the spillover effect and volatility caused by over-dependence on foreign investors in the nation’s stock market. They linked the huge investment outflow from foreign investors to uncertainties that shrouded the nation’s economic outlook, occasioned by insecurity, kidnapping and recurrent farmers-headers clashes.
According to them, this gives credence to the fact that while the large presence of foreign investors in the market signifies strong attraction to the country, their sudden reversal also portends great danger, given the bearish mode currently being witnessed in the market.
The operators insisted that the major reason for the depressed state of the market is the selldown by foreign investors who play a dominant role in the nation’s stock market.
After the January and mid-February 2018 rally, the market recorded unprecedented reversal in performance contrary to predictions by analysts. The capitalisation, which stood at N15,549 trillion as at Wednesday, February 28, 2018, dropped to N13,766 trillion Thursday, May 30, 2018, representing N1,783 trillion or 12.9 per cent loss.
Also, the All-Share Index declined by 12,076 points or 38.6 per cent to 31,254.19 from 43,330.54, achieved as at February 28, 2018.
The operators based their position on the claim that between 2007 and 2010 financial year, domestic transactions executed by retail investors outperformed foreign investors by close to 80 per cent as retail patronage dominated activities in various sectors in the equities market.
The dominance of foreign investors in the nation’s stock market could be traced from 2011, immediately after the global financial crisis that burnt the fingers of many domestic investors.
A breakdown of foreign, domestic investors’ participation in the stock market before the 2009 global financial crisis showed that domestic participation was worth N9,496 billion between 2007 and 2010, while foreign investors’ patronage constituted only N2,405 billion within the same period
The operators linked the inability to sustain the upward trend in local participation to failure on the part of the government and regulators to attract retail investors (who incurred huge losses during the crises) back to the market and improve the general performance of the exchange.
The foreign investors are nervous about Nigeria’s macroeconomic and monetary outlook, especially the increasing political risks. Therefore they suggested that local institutions with strong capacity must invest in the market, to reduce the dependence on foreign investors and prevent unnecessary shocks. They also believe that creating policies that would attract retail investors back to the market would improve the general performance of the exchange.
