Bonds, Currencies, Emerging Markets, Frontier Markets, Stocks

Foreign Investors Pull Out Of Nigeria’s Equity And Bond Markets

By James Eugene

 Nigeria’s economic woes do not look like dispersing any time soon as foreign investors have have decided to reduce their commitment to invest in equities in the Nigerian Stock Exchange, according to the stock exchange’s recent report.

The report (titled Domestic & Foreign Portfolio Participating In Equity Trading) indicated that total foreign investments have drastically decreased, compiling additional woes on the nation’s economy and further effecting both domestic and international confidence in one of Africa’s major economy.

Total foreign transactions fell by 14% between August 2015 and September 2015, from N81 billion (approx $0.4 billion) to N69 billion ($0.35 billion). This September figure is not only the lowest recorded in 2015 so far, but also 3.2 times less (69%) than the N226.68 billion (approx $1bn) recorded in September 2014.

Foreign & Domestic Investments in the Nigerian Stock Exchange (2015)

Foreign and Domestic Investments in the Nigerian Stock Exchange (2015)

Foreign portfolio investments (FPI) outflows also outstripped inflows in September, illustrating an opposite trend to the same time last year when the Nigerian Stock Exchange (NSE) recorded net foreign inflows. Total inflows so far this year have been lackluster compared to 2014. Historically, domestic FPI was a more prominent form of investment into the NSE, but was eventually outpaced by foreign investment after the financial crisis, as shown below.

Foreign vs Domestic FPI (Historical Trends)

Foreign vs Domestic FPI (Historical Trends)

Total foreign FPI has more than doubled over the seven year period from N616bn to N1536bn. It is also worth noting that the share of foreign FPI has increased over time, further providing evidence that the bourse relies on foreign investment and must work harder to ensure that it does not fall any further in the near future.

Falling Stock Market and Economic Woes

Nigeria’s stock exchange is ranked among the worst performing frontier markets so far this year, shedding around 15% of its value since the beginning of the year, with a maximum drop of around 20% in February and the end of August. Falling oil prices has been one factor that has contributed to a lack in investor confidence in the nation, while a lack of investment in science, innovation and technology has contributed to a further slow down in the expansion potential the Nigeria harbours.

Nigeria's Stock Exchange (year to date)

Nigeria’s Stock Exchange (year to date)

Recently, foreign investors have ignored high-yielding Nigerian bonds as they believe that the central bank will take some form of action to further devalue the naira, which will feed through into bonds in the form of a depreciation in their value. According to Bloomberg, local-currency government bonds were posting returns of up to 10.8% percent in dollar terms, which is the most among 31 developed nations that Bloomberg tracks, but this still wasn’t enough attract investors. Ever since, the likes to Kenya, Egypt and Brazil have all surpassed Nigeria in terms of high-yield bonds.

Things went from bad to worse for Nigeria’s bonds as not only JPMorgan removed the African nation’s bonds from its Government Bond Index Emerging Markets (GBI-EM), but Barclay’s have also decided to remove it from their Emerging Markets Local Currency Government Index as of February 1st 2016.

As things stands, the current administration not only has to deal with budgetary and terrorist issues that already plague the country, but must also convince investors, both domestic and foreign, to retain confidence in the market.

About James Eugene

Interested in many (maybe too many) things. Football, Politics and Emerging & Frontier Markets, to name a few. Twitter: @James_Eugene

Discussion

2 thoughts on “Foreign Investors Pull Out Of Nigeria’s Equity And Bond Markets

  1. Reblogged this on World Peace Forum.

    Like

    Posted by daveyone1 | November 10, 2015, 9:44 am

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  1. Pingback: IMF Urges Nigeria To Devalue Currency As Its Economy Crumbles | EMerging Equity - February 24, 2016

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