HOT MONEY: Foreign Investors ship-out N257 billion from Nigerian stock market

Foreign investors are taking out more money from their investments in the Nigerian stock market.

Foreign investments inflow into the Nigerian Stock Market was N41.2 billion for the month of June 2019 compared to N37.9 billion in the month of May. This is the highest foreign investment inflow into the stock market this year. Unfortunately, this is not what matters.

The numbers; Foreign investment outflow, a more important measure of foreign investor staying power into the country performed worse.

  • Foreign Investors shipped out N52.4 billion in investments out of the country compared to the inflow of N41.2 billion. In fact, foreign investment outflow has outpaced foreign investment inflow every month since January 2019.
  • In total, foreign investor outflow for the period between January and June 2019 was N257.8 billion compared to N214.9 billion in inflows over the same period.
  • Domestic Retail investor investment was N329.6 billion compared to N285 billion June 2019 year to date.

Breaking it down: Since the former CBN Governor, Sanusi Lamido Sanusi lifted the restriction on foreign investor outflow of their investment into Nigeria, the Nigerian Stock Market has come to rely on foreign investment to drive up market values.

  • There is also a correlation (though not perfect) between net positive foreign investor inflow and a positive return in the stock market All-Share Index.
  • The higher the net inflows the higher the possibility that the stock market will post more of bulls over bears.
  • Now, despite MTN and Airtel listing boosting stock market capitalization by over N3 trillion, Nigerian stocks continue to fall in market valuation.
  • Typically, stock market drops are associated with overall bad results and or a floundering economy.
  • Ironically, while the economy is still reeling from the recession and poor policy implementation, most quoted companies are still posting strong profits.
  • Thus, the stock market is suffering more from a lack of demand than anything fundamental.

Why it matters: In 2017, Nigerian Stocks returned a whopping 42.3%, one of the best ever recorded. This was on the back of the introduction of the I&E window, allowing foreign investors to inflow cash into the economy.

  • In that year total foreign investment inflow was N776.2 billion compared to an outflow of N435 billion.
  • In fact, foreign investor inflow outpaced outflow every month since April when the CBN introduced the window.
  • Investors in the Nigerian stock market will have to wait for signals that foreign investors are back into the stock market before placing any bet on stocks valuation rising.
  • Anyone scooping up stocks should do so on a pure need to accumulate capital and not to expect capital appreciation in the medium to long term.
  • Until foreign investment inflow starts outpacing outflow, we might continue to live in a depressed stock market.