Foreign Portfolio Investors are net sellers on the Nigeria’s Bourse in 2015

Lagos, Nigeria, Capital Markets in Africa — The total transactions at Nigerian Stock Exchange fell 41.72 percent from NGN 189.72 billion recorded in January to NGN 110.56 billion (about US$0.56 billion) in December 2015. This represents a decrease of 13.49% from N127.8 billion recorded in November. Likewise, Foreign Portfolio Investor (FPI) transactions decreased by 33.39 percent from NGN1,538.92 billion recorded at the end of 2014 to NGN 1,025.07 billion at the end of 2015. Out of the total transactions, NGN 554.24 were recorded as foreign outflow and NGG 470.83 billion.

On the other hand, the total domestic transactions decreased by 22.53% from N1,136.63 billion recorded at the end of 2014 to N880.56 billion recorded at the end of 2015. In addition, the total domestic transactions increased by 7.26% from NGN 55.2 billion in November to NGN 59.21b in December 2015. In comparison to December 2014, total domestic transactions decreased from NGN 133.6 billion to NGN 59.21 billion. Looking at the investor types, institutional composition of the domestic market accounted for about 47.17 percent  in November increased to 67.86% at the end of December, whilst the retail composition decreased from 52.83% to 32.14% in the same period. In comparison to December 2014, institutional composition decreased from 72.99% to 67.86%, whilst the retail composition increased from 27.01% to 32.14% in the same period.

The statistic reveals also that in 2013, there was a major rebound in the domestic component which led to an almost equal split in foreign vs. domestic transactions. This dropped in 2014 where FPI outperformed domestic transactions. In 2015 FPI dropped compared to 2014. However, it slightly outperformed domestic transactions in the same period.

The net foreign outflow and decreased in the foreign transactions are caused by Nigeria’s central bank adamant not to devalue the naira via currency-trading curbs and restrictions on imports since March 2015 in an effort to stem capital flight from the continent’s largest oil producer and preserve the dwindling foreign reserve  due to fall in oil price (now below US$30 per barrel). Consequently, this action has pressurised the nation’s bourse benchmark index to plunge by 17.4 percent in 2015 and had already lost 18.50 percent this year (as at Wednesday, 20 January 2016). 

The Naira keeps on hitting record lows on the black market, depreciating to NGN/USD 305 this week, more than 50% weaker than the official rate. Also, it seems that the CBN and President Buhari are in no rush to devalue the Naira. The big question are when and how much devaluation will investors seem appropriate? Also, what is the political impact of  letting Naira go?