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Foreign Investment in Nigerian Equities Sunk to Nine-Year Low

Foreign Investment in Nigerian Equities Sunk to Nine-Year Low

By Goddy Egene

Early this year,Nigerian equities dropped the most in more than a year to enter a bear market as Brent crude prices plunged, weighing on Africa’s biggest economy and oil producer. The foreign investment in Nigerian equities in the third quarter of 2016 fell to nine - year low as investors seek safety in less risky and high yielding fixed income securities.

The capital importation data supplied by the Central Bank of Nigeria (CBN) and recently released by the National Bureau of Statistics (NBS) showed that foreign inflows into equities in Q3 fell by 28 per cent quarter to quarter (QoQ) for the first time in the capital market data series.

Besides, it fell to nine year- low of 2007 level. Specifically, inflows into equities were $201.12 million in the Q3, compared to previous highs of $4.930billion in Q1 of 2013 and $3.875 billion in second quarter of 2014.

While inflows into equities fell, the total capital imported into the country in Q3 rose from the level in Q2. According to NBS, the total value of capital imported into Nigeria in Q3 2016 was estimated to be $1.822 billion, which represented an increase of 74.84 per cent relative to the second quarter, and a fall of 33.70 per cent relative to the third quarter of 2015.

"The highest level of capital imported was in August, when $894.00 million was imported, the highest level since July 2015. In September $649.76 million was imported, which was still more than any month in the first and second quarters. In contrast with the previous quarter, where Other Loans explained the majority of the increase, a number of investment types contributed to the quarterly increase," the agency said.

NBS explained that much of the quarterly increase in the value of capital importation came from debt financing, noting that of the total quarterly increase, 85 per cent was accounted for by increases in portfolio investment in bonds and money market Instruments.

"The latter of which comprises short-term funding securities such as treasury bills and commercial bills from CBN. Quarterly growth in foreign direct investment (FDI) equity was also strong, although portfolio equity continued to decline. FDI investments have a longer-term interest, and are therefore less likely to reflect short term challenges than portfolio equity.

"Nevertheless, each type of investment (FDI, portfolio and other) recorded quarterly increases, of 84.84 per cent, 172.84 per cent and 7.80 per cent respectively. The relatively strong growth in portfolio Investment meant it regained its position as the largest investment type, and it accounted for 50.51 per cent in the third quarter, compared to 18.69 per cent and 30.80 per cent for Other Investment and FDI respectively. Year on year growth rates remained negative; FDI, portfolio and Other Investment declined by 52.54 per cent, 8.80 per cent and 45.05 per cent respectively compared to the third quarter of 2015," NBS said.

Commenting on the development, analysts at Afrinvest West Africa, an investment banking firm, said: "Notwithstanding expected drag in equities portfolio inflow in the short term, we expect capital importation to continue to show improvement on Q-o-Q basis, buoyed by loans (particular the recently approved $600 million AFDB budget support facility and planned Eurobond issuance for Q4:2016) and fixed income investments inflow. However, medium term drivers of capital importation include FX market liquidity development, monetary policy outlook and FGN negotiation for multilateral credit facilities.
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