Capital Market experts have expressed concerns on the volatility and spillover effect caused by over dependence on foreign investors in the Nation’s stock market. According to them, the major reason for the depressed state of the market is due to sell down by foreign investors that play dominant role in the Nation’s bourse.
Indeed, foreign investors’ participation rose to N150.10 Billion in November 2017 from N44.01 Billion in January last year. Latest figure on domestic and foreign portfolio participation in equities trading from the Exchange showed that Foreign Portfolio Investment, FPI, inflow outpaced the FPI outflow during the 11 month period.
For them, mobilising local institutions with strong capacity to invest in the market to reduce the dependence on foreign investors and prevent unnecessary shocks remains a veritable solution.
Besides, they are of the view that attracting retail investors back to the market would improve the general performance of the Exchange going forward. Figures from the Exchange showed that there has been a consistent increase in FPI over the last six months, following the introduction of the Investors and Exporters (I&E) Window by the Central Bank of Nigeria (CBN) to boost liquidity in the Foreign Exchange (Forex) market and ensure timely execution and settlement of eligible transactions.
Surprisingly, after the January and mid-February rally, the market till date has recorded unprecedented reversal in performance contrary to analysts’ predictions. The market capitalisation, which stood at N15.549 Trillion as at Wednesday, February 28, 2018, is now at N13.802 Trillion as at Thursday, May 31, 2018, representing N1.7 Trillion or 12.7 per cent loss.
Also, the All-Share Index declined by 5,226 points or 13.7 per cent to 38,104.54 from 43,330.54 achieved as at February 28, 2018.Analysts had blamed the declining outlook of the market to tension that has besieged the political space in recent times, with foreign investors that play dominant role now resorting to massive sell-off in the market.
They argued that while the large presence of foreign investors in the market signifies strong attraction to the country, their sudden reversal also portends great danger with the bearish mode witnessed presently in the market.
But the experts urged other local investors to equally see the trend as potential opportunity to take position for future capital appreciation. Reacting to the issue, the Publicity Secretary of the Independent Shareholders Association of Nigeria, Moses Igbrude, linked the persistent lull in the market to over dependence on foreign investors, noting that the local ones that are affected during the recession were being neglected.
“Depending on foreign investors, especially the portfolio investors, to deepen our capital market is a very wrong concept and lazy approach to growing an institution that is described as a barometer in measuring an economy.
“As the name implies, portfolio investors are unreliable set of businessmen. When the economy looks good, they bring their portfolio of money and when it looks bad, they vanish into the thin air with their portfolio of money, creating more instability in the system. Nigerians should know that we are the only ones that will build or develop our country.
“The Government and other stakeholders should focus on how to encourage and educate Nigerians on the importance and benefit of investing in the capital market. The focus should be on how to build local capacity that can absorb the effects of foreign portfolio investors.
An independent investor, Amaechi Egbo, explained that foreign investors are nervous about Nigeria’s macroeconomic and monetary outlook, especially the increasing political risks. He regretted that virtually all stocks on the NSE are have depreciated in piece despite strong fundamentals.
“The primary reasons for the depressed state of the market is due to sell down by foreign investors. While the large presence of foreign investors signifies strong attraction to the country and our market, since these are foreign currency, their sudden reversal also portends great danger for the market. “We urge strong institutions in the country to be at the forefront of this investment opportunity by increasing their stakes in the equity market,” he said.