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Stock Market

How instability in the FX market trigger foreign investors apathy in Nigeria’s equities market

Chukwu has explained how foreign exchange crises have negatively impacted foreign investors’ sentiment in Nigeria’s equities market.

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The Chief Executive Officer of Cowry Asset Management, Mr Johnson Chukwu, has explained how a combination foreign exchange crises have negatively impacted foreign investors’ sentiment in Nigeria’s equities market.

The analysis was in response to the recent Nigerian Stock Exchange’s Domestic and Foreign Portfolio Investment Report for January 2021, which showed that domestic participation in the equities market outperformed foreign transactions, as the latter could only account for 20% of the total market activities.

The report further indicated a downward trend in the share of foreign participation in the equities market, from about 51% in 2018 to 20% as at January 2021.

Reacting to the development, Mr Chukwu in an interview with Arise TV blamed the combination of FX liquidity crisis and instability of the Nigerian foreign exchange market as underlying causes for the downward trajectory.

He said: ‘’If you look at the trend in the past three years, you will observe that foreign portfolio investment into Nigerian equities market has been declining. In 2018, it was 51% of the entire market, so they actually trumped local investors. By 2019, it declined to 49%, implying that the local investors had trumped them. However in 2020, they only accounted for 34% of the entire market, it further came down to 20% by January 2020. Of course, we know those factors that are driving away foreign portfolio investment in the country, and until those factors are addressed, we are likely to see the trend continue.”

On how FX instability and illiquidity contributed to the decline, Mr Chukwu remarked that: “The main factor that drive foreign inflow into the economy is the liquidity in the FX market. Foreign investors want to be able to convert back to their foreign currencies when they want to exit. If there is no liquidity in the FX market, foreign portfolio investors stay away from the market. As you know, the Nigeria FX market witnessed locking of foreign portfolio investors who sold their investments and wanted to exit, but they could not access FX to exit. So because those people couldn’t exit, new investors couldn’t come in. You can’t really go into a market when people are trapped.

“Another factor that could influence them is the stability or predictability of the exchange rate. But the most important factor is the liquidity in the FX market. If you look at the year, these foreign portfolio investments were impressive, oil price was quite strong, for example in 2018, they brought in about N1.2 trillion accounting for 51% of the market activities.”

On the flip side, Mr Chukwu explained why local investors’ participation has been growing. He attributed the increase to the collapse of interest rates and the impressive returns posted by the NSE last year.

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‘’The basic thing that happened was that because local interest rates collapsed last year and they remain very low even in January, , local investors particularly institutional investors are underweighting their portfolios in fixed income and overweighting them in equities. When interest rates are very low, investors will switch to the instruments that will give them high yield and in this instance, variable income assets like equities and that was what happened last year and is still happening now,’’ he said.

What you should know

  • Nairametrics reported that despite a bullish run of the NSE in 2020, total investments in the Nigerian stock market as at January 2021 dipped by 13.7% M-o-M.
  • Total foreign transactions as at the aforementioned period stood at N47.52 billion, while domestic transactions stood at N184.94 billion.

Chidi Emenike is a graduate of economics, a Young African Leadership Initiative Fellow and an Investment Foundations certificate holder. He worked as a graduate Teaching Assistant in the Federal College of Education Kano and is also a trained National Peer Group Educator on Financial Inclusion

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Markets

JAPAULGOLD, STERLNBANK surge, GUINNESS plunges  

The All-Share Index decreased by -0.29% to close at 38,601.83 from 38,712.55 index points.

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Stocks drop after the S&P 500 sets a new high

The Nigerian Stock Exchange market made another bearish run at the end of the trading session. The All-Share Index decreased by -0.29% to close at 38,601.83 from 38,712.55 index points.

  • The Nigerian Stock Exchange market value currently stands at NGN 20.26Tr. Its Year-to-Date (YTD) returns currently stands at -4.14%.
  • The market closed beneath expectation as JAPAULGOLD led 15 Gainers, and GUINNESS topped the chart of 18 Losers with a noticeable bearish movement by the NSE ASI.

Top gainers

  1. JAPAULGOLD up +8.70% to close at N0.75
  2. NAHCO up +7.39% to close at N 2.18
  3. STERLNBANK up +7.14% to close at N1.80
  4. STANBIC up +5.75% to close at N46.00
  5. CHAMS up +5.00% to close at N0.21

Top losers

  1. GUINNESS down -9.91% to close at N24.10
  2. TRIPPLEG down -9.72% to close at N0.65
  3. NCR down -9.68% to close at N2.52
  4. CHAMPION down -9.09% to close at N2.00
  5. JAIZBANK down -7.69% to close at N0.60

Outlook

Analysts’ predictions of a recovery in the market were halted by another bearish trend at the end of the trading session on Tuesday, though there is strong optimism that a recovery from the financial and consumer sectors will push the NSE-ASI back to profit.

Nairametrics advises cautious participation in the stock market in this era of growing uncertainties.

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Markets

Japaul Gold mines gold for investors, as shares return N751 million for investors in two days

Japaul Gold shares deliver 19.05% gains in two trading sessions on the floor of the NGX.

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ETF, stocks, shares, investment, equity,Gold loses some shine on hopes for COVID-19 vaccines

Japaul Gold continues to excite investors as the shares of the gold exploration company gained an additional 8.7% during today’s session on the Nigerian Stock Exchange (now NGX), to close higher at N0.75 per share.

The 8.7% increase in the company’s share price today extended the total returns to all shareholders from their investments in the company’s shares to N752 million in just two trading sessions.

These gains have seen the market capitalization of the rebranded company with a key focus on exploration increase from N3.95 billion to N4.70 billion in two days.

Data tracked on the NGX website (previously NSE), from the market close last week Friday till the close of trade today revealed that the share price of Japaul Gold and ventures surged by 19.05%, from N0.63 per share to N0.75 per share.

In case you missed it

Nairametrics reported last week that Japaul Gold took the market by surprise in the first active trading week in the month of April, as the shares of the rebranded company surged by a whopping 40%, to lift the company’s capitalization by about N1.38 billion.

  • Prior to the move up to N0.63 per share at the close of trade last week, the shares of Japaul Gold bottomed at N0.41 on the 31st of March 2021.
  • This move presented bargain hunters with the golden opportunity to benefit from the upward price swings in the company’s shares.

What you should know

  • The shares of the rebranded and restructured company with a new focus on Gold exploration as its new name suggests, rallied to a record 52-week high of N1.67 this year, on the 18th of January, 2021.
  • At the current price, shares of Japaul Gold are trading 20.97% higher than what the company’s shares sold for at the close of trading activities on the 31st of December 2021.

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