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Business News

Foreign investors’ inflows outpace outflows as election-fever wears off

The investment of foreign investors in the Nigerian equities market has risen by 61.4 percent in the second quarter of the year. This is the first time in 2019 that the recorded foreign portfolio investment in Nigeria has been positive.

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The investment of foreign investors in the Nigerian equities market has risen by 61.4 percent in the second quarter of the year. This is the first time in 2019 that the recorded foreign portfolio investment in Nigeria has been positive.

According to the Nigerian Stock Exchange (NSE), foreign inflow from foreign portfolio investors (FPIs) increased to N41.78 billion in April from N25.89 billion in March of the same period under review.

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In the first quarter of the year, foreign portfolio investors made more outflow transactions than they invested in the country.

According to the stock market report on foreign investment, foreign portfolio inflows surpassed outflows by N6.64 billion in April, making it the first time the market will be experiencing positive growth in 2019.

Breakdown of foreign investment: Foreign portfolio inflows stood at N41.78 billion as against outflows of N35.14 billion, indicating 37.1 percent increase in total foreign transactions from N56.09 billion in March 2019 to N76.92 billion in April 2019. With more activities by foreign investors, who dominate transactions at the market, total transactions at the market consequently increased from N110.11 billion in March to N148.9 billion in April. Foreign investors accounted for 51.66 percent of total transactions in April as against 48.34 percent by domestic investors, thereby sustaining a familiar trend of foreign dominance.

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Local investors losing ground to foreigners: In recent years, local investors have begun to lose their grip on the Nigerian capital market after previously dominating for two years consecutively before 2018. The foreign investors are beginning to dominate the stock market even though the majority of the transactions are tilted towards outflows.

Having more of outflow transaction within the full-year reverses the positive net foreign portfolio investments of N336.94 billion recorded in 2017 with a negative net foreign portfolio deficit of N66.2 billion in 2018.

Foreign portfolio investors traded about N1.22 trillion last year, a marginal percentage point increase of about N1.21 trillion traded in 2017. Total transactions at the equities market had declined from N2.543 trillion in 2017 to N2.404 trillion last year. With these, foreign investors accounted for 50.87 percent of total transactions at the equities market in 2018 compared with 47.49 percent in 2017.

While total transactions at the equities market declined last year FPIs showed sustained growth at N1.219 trillion in 2018, building on the 133 per cent growth that saw total FPI transactions rising to N1.208 trillion in 2017. Foreign investors had accounted for the largest transactions at the Nigerian stock market between 2011 and 2015, but were overtaken by domestic investors in 2016, who sustained their marginal lead in 2017.

Foreign transactions, which stood at N1.54 trillion in 2014, had declined considerably to N518 billion in 2016, before making a remarkable recovery to N1.208 trillion in 2017. Conversely, domestic investors, which had traded a high of N3.55 trillion in 2007, had shown considerable slowdown over the past 12 years, dropping by 66.67 percent to N1.185 trillion in 2018.

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However, the report showed net FPI deficit of N66.2 billion in 2018 as against a surplus of N336.94 billion in 2017. Total foreign inflows in 2018 stood at N576.45 billion compared with outflows of N642.65 billion. Foreign inflows had in 2017 outpaced outflows at N772.25 billion and N435.31 billion respectively.

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Why foreign investors are taking over: Domestic investors reduced their transaction. The amount of investment by local investors reduced to N1.185 trillion in 2018 as against N1.335 trillion in 2017, thereby accounting for 49.13 percent of total transactions in the equities market in 2018 compared with 52.51 percent in 2017.

Why this matters: Foreign inflows outperformed outflows in 2018, hitting N206.35 billion compared to outflows’ N175.47 billion in the first quarter of last year, only for the outflows to record N124.24 billion as against N97.63 billion of the inflows in 2019.

In Q1 of 2019, Nigeria suffered a net deficit of N26.6 billion in foreign portfolio transactions due to political and macro-economic uncertainties which affected foreign investors confidence in Nigeria’s stock market. This is peculiar to election period in most countries. The rise in inflows right after the election period shows foreign investors’ confidence is gradually picking up.

What you need to know: Foreign portfolio transactions recorded a negative balance of N26.6 billion in inflow and outflow transactions by foreign portfolio investors in first quarter 2019 compared with a positive balance of N30.88 billion recorded in the comparable period of 2018.

The report also showed that foreign portfolio transactions dropped by N159.95 billion in the first quarter of 2019, representing a decrease of 41.89 percent compared to the turnover in the first quarter of 2018. Total foreign portfolio transactions dropped from N381.82 billion in first quarter 2018 to N221.87 billion in first quarter 2019.

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How the report is compiled: The transactions of major custodians and capital market operators are aggregated. The foreign portfolio outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE.

Meanwhile, two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy.

Olalekan is a certified media practitioner from the Nigerian Institute of Journalism (NIJ). In the era of media convergence, Olalekan is a valuable asset, with ability to curate and broadcast news. His zeal to write was developed out of passion to shape people’s thought and opinion; serving as a guideline for their daily lives. Contact for tips: fakoyejo.olalekan@nairametrics.com.

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Coronavirus

COVID-19 reveals that many Nigerians have no emergency savings

The playout of events following the lockdowns resulting from the ongoing COVID 19 pandemic shows that Nigerians do not have emergency savings

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COVID 19 Shows that Many Nigerians have No Emergency Savings

Though we are still grappling with the effects  of COVID-19, it may not be too early to begin to take stock and find out what we did well during the pandemic and what we should have done better.

Almost everyone’s radar has been on the ill-preparedness or lack of appropriate response by the government, with little or no time for an inward look at ourselves. The type of government we have in Nigeria should not have left anyone surprised at their response to the pandemic, especially when it came to the welfare of the populace. What do you expect from a government that is dysfunctional, at best?

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With such government, it is time for Nigerians to begin to watch out for themselves and prepare for the unforeseen, like the times we are in currently. The playout of events following the lockdowns caused by the ongoing COVID-19 pandemic shows that Nigerians do not have emergency savings.

According to a recent publication from the Punch Newspaper, “Barely one month of a lockdown of Abuja, Lagos and Ogun state, millions of Nigerians had become stricken with hunger. Many could not bear an extension of the movement restrictions.” The ensuing protests were indicative of the fact that many Nigerians were living off their daily incomes with no savings to fall back on.

High Poverty Level

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Many may have asked how they could save without having funds, to begin with. Agreed, the level of poverty is high in Nigeria; however, people should know that having savings is not a luxury, but a necessity. It does not have to be large, but putting aside something, no matter how small on a regular basis goes a long way in times of emergency.

I have seen images of Nigerians who surprised themselves and others with how much they saved over time in their piggy banks. There is no hard and fast rule of how much one should have in emergency funds, but there seems to be an agreement among financial analysts and planners that having the equivalent of 6 months’ expenses in your emergency savings account is the ideal.

The author of the book “Richest Man in Babylon” stated it clearly that if you do not save, it means that you have paid everyone else but yourself.

How to Start Saving

Pay yourself first: In line with the instructions in “The Richest Man in Babylon,” when you receive your monthly salary or collect that sales proceed from your business, “pay yourself first” by saving at least 10% of your collections or salary. For the salary earner, set up a direct deposit account where the money would be taken out of your pay directly into a bank savings account. By so doing, you are forced to save.

(READ MORE: If you experience these signs then know your salary is not enough)

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Cultivate the savings habit: Just as spontaneous buying is a habit, form the habit of saving. Do not see saving as putting aside the remnants (if any) after all your expenses. If that is your attitude to savings, then you fall into the group that pays everyone else but themselves.

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One thing is certain; as long as you have the money, there will always be something that is going to demand that money from you.

COVID 19 Shows that Many Nigerians have No Emergency Savings

Remind yourself to save: If you are a salary earner who does not want to set up a direct deposit from your paycheck or you are a businessman or woman of any means, you can set up a savings reminder around the time you receive your salary or around your peak business time.

One website that can help you with this is https://www.futureme.org/  With this website, you can send an email to yourself to be delivered around the time you expect to receive your pay or business income, reminding yourself to save. Just like you set an alarm on your mobile phone, you can do so with a reminder to save.

Start Small ASAP: The Bible says that if you are not faithful with small things, how can you be faithful with larger things. You do not need millions to start saving, all you need is the will, the determination, and consistency. So, start small and start now, but be consistent.

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Reduce your Expenses: As already noted, one of the reasons that people do not save is because their expenses keep increasing, even when income sources are shrinking. If you find yourself in that situation (and you surely will, at one point or the other), cut down on your expenses and make them fall in line with trends in your income. Avoid spontaneous, emotional and flamboyant buying. Buy out of need, not out of want.

(READ MORE: Between saving, investing, speculating, trading & gambling)

Why It Seems Difficult to Save: To a whole lot of people, it is difficult to save because they live in the now. This is what financial psychologists call scarcity of attention. This scarcity of attention stops people from seeing what is really important and makes them see the urgent current expenses they need to cover.

5 Money Mistakes You Might be Making, COVID 19 Shows that Many Nigerians have No Emergency Savings

One reason why it is difficult to save is that while the expenses keep rising (out of increased need and inflation), sources of income keep shrinking or stagnating. The good thing however, is that we have the option to shrink our expenses in line with shrinkages in our income, but often times, we do not choose to do that. That is where the inability to save starts from.

Conclusion: If there is any lesson, we learned from the sudden outbreak of COVID-19, it is and should be that emergencies happen, and efforts should be made to cushion the financial impact of such emergencies by preparing for them in advance through emergency savings.


 

Written by  Uchenna Ndimele uchenna@mutualfundsnigeria.com

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Business News

IMF advises banks to suspend dividend payment

However, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income.

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In an article published on its website, International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, advised banks to halt dividend payment for now. According to her, with the expectation of a deep recession in 2020 and partial recovery in 2021, banks’ resilience will be tested. Therefore, having in place strong capital and liquidity positions to support fresh credit will be essential.

According to the article, one of the steps needed to reinforce bank buffers is retaining earnings from ongoing operations which are not insignificant.

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IMF staff calculate that the 30 global systemically important banks distributed about US$250bn in dividends and share buybacks last year.

READ MORE: State Governments: Another cycle of non-payment of salaries to begin soon

In a circular dated January 31, 2018, the Central Bank of Nigeria (CBN) stipulated new conditions for eligibility of Nigerian banks to pay dividend and the quantum of dividend to be paid out by banks who are eligible. Prior to the release of the circular, dividend payout policy for Nigerian banks had been spelt out in Section 16(1) of BOFIA 2004 (as amended) and Prudential Guidelines for DMBs of 2010. The circular provided guidelines and restrictions around divdidend payout for banks based on NPL ratio, CRR levels, and Capital Adequacy Ratio (CAR).

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However, there were no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a CRR of “low” or “moderate” and an NPL ratio of not more than 5%. However, it is expected that the Board of such institutions will recommend payouts based on effective risk assessment and economic realities. Indeed, current economic realities demand caution.

Current economic realities mean that banks face asset quality threats, further devaluation threat which may impact capital in some cases, and lower profits which in turn affects the quantum of capital retained. Ideally, these should reflect in NPL ratio and CAR ratio and should immediately restrict banks’ ability to pay dividend. However, there is usually a time lag before these ratios begin to reflect the new economic realities. Therefore, IMF’s advise may come in handy for many banks.

(READ MORE: Software security limitations cited as major reason for Covid-19 bank rush)

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That said, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income. Banks like Zenith and Guaranty Trust have a good history of consistent dividend payment with attractive yields which is a major attraction for many shareholders.

IMF advises banks to suspend dividend payment

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CSL STOCKBROKERS LIMITED CSL Stockbrokers,

Member of the Nigerian Stock Exchange,

First City Plaza, 44 Marina,

PO Box 9117,

Lagos State,

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NIGERIA.

 

 

 

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Economy & Politics

CBN reduces MPR to 12.50%, holds other metrics

Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50% and retains CRR at 27.5%, Liquidity ratio at 30%.

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The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50%.

Governor, CBN, Godwin Emefiele, disclosed this while reading the communique at the end of the MPC meeting on Thursday in Abuja.  Meanwhile, other parameters such as the Cash Reserve Ratio  (CRR) remained at 27.5%, Liquidity ratio at 30%.

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READ ALSO: Bankers decry rise in public debt, weak economy

Highlights of the Committee’s decision

  • MPC cuts MPR by 100 basis points to 12.50%
  • CRR stood at 27.5%
  • The Liquidity Ratio was also kept at 30%

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READ ALSO: Nigeria’s total debt to hit N33 trillion – Senate

According to Emefiele, the decision of the MPC to reduce the Monetary Policy Rate  was informed by the impact of the Covid-19 pandemic on the economy, increased inflationary pressure, restrictions in international trade and more.

He highlighted the decline in the nation’s GDP as well as the decline in the manufacturing and non-manufacturing purchasing index which were attributable to slower growth in production, rate of unemployment, amongst others.

READ MORE: AfDB’s Akinwumi Adesina hits back, denies allegations against him

On reopening of the economy, Emefiele emphasised the need for Government to work towards a gradual reopening in line with recommendations of the Presidential Task Force (PTF) and advice from medical experts, insisting that efforts must be directed at saving not only lives but also livelihoods. He said,

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“This is to enable the resumption of economic activities necessary to stimulate growth, accelerate the pace of recovery and restore livelihoods, particularly the vulnerable in our society.

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“With respect to output, the Committee urged the Federal Government to continue exploring options of partnership with the private sector to fund investment in infrastructure. This would aid employment generation, support production and boost output growth.”

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