Foreign investors return to Nigeria stocks as inflows quintuple

Foreign investors are buying Nigerian stocks again after an extended time off sparked by dollar shortages made worse by the Central bank’s capital controls.

Foreign inflows into Nigerian stocks jumped fivefold in the first three months of 2024 to N93.37 billion from N18.12 billion in the same period last year. That’s also the highest amount of inflows in any three-month period since 2019.

According to latest data from the Nigerian Exchange Group, the highest inflows in the period under review came in the month of March when the figure jumped to N52.66 billion- exceeding the N40.71 billion inflows in January and February combined.

“The CBN’s reforms have taken Nigeria from uninvestable only a year or so ago to investable this year,” a foreign portfolio manager who invests in Africa said.

“The settlement of the FX backlog, shift to a more market-determined exchange rate and a more credible monetary policy are proving too hard to resist for investors.”

The naira devaluation also played a role in the outsized inflows but that’s not enough to mask the improving investor confidence in Nigeria.

This is evidenced by the fact that while the naira has lost close to 60 percent of its value after two rounds of devaluations by the CBN since June, inflows are up over 400 percent.

There was also some selling activity in the market as foreign outflows also surged in the three-month period to N119.81 billion, more than three times the N35.59 billion recorded in the same period last year.

That put the total transactions carried out by foreign investors at N213 billion and left a negative net foreign inflow of N26.44 billion, which is the difference between outflow and inflows.

The large outflows won’t worry authorities much given the figure is more reflective of the settlement of investors whose funds had been trapped in the market rather than an indication of rotten investor-sentiments.

Nigerian stocks gained 39.84 percent in the first quarter of 2024 with local investors even contributing more to a performance that ranked the Nigerian stock market as the world’s best in Q1.

Local investors traded stocks worth N1.3 trillion compared to the N213 billion accounted for by foreign investors.

The N1.3 trillion traded by the local investors, both retail and institutional investors, in the first three months of this year is more than double the N476 billion traded in the first quarter of 2023.

Industrial goods companies, consumer goods firms and banks drove the 39.84 percent stock rally in the first quarter.

The industrial goods index, which tracks the share price movement of companies like Dangote Cement, BUA Cement and Lafarge Cement, rose 78 percent in the three months through March.

The consumer goods index, which tracks the prices of the likes of Nestle and Nigerian Breweries, gained 43.66 percent while the banking index which tracks stocks of lenders from Access Bank to United Bank for Africa rose 14.76 percent.

The impressive return of the banks stocks in the first quarter of 2024 has however faded with more recent data showing the banking index was down 12.07 percent as at April 19, 2024.

Bank stocks have retreated since the CBN announced a ten-fold recapitalisation exercise that excluded retained earnings from being counted as part of the banks’ share capital.

Most of the banks, particularly the big ones, have all announced plans to embark on Rights Issues which investors fear could dilute their shares.

That has caused a pull back in banking stocks since the March 28 announcement by the CBN giving the lenders 24 months to raise fresh capital.

Nigerian stocks are not the only asset class attracting foreign investors with a significant amount of dollars flowing into the fixed income market after the CBN hiked interest rates by a record to 24.75 percent.

Read also: Foreign investors hit brakes in Nigeria over volatile naira

The improved inflows have contributed to a stable naira although the rising geo-political tensions which has led to a strengthening dollar is threatening to mute foreign inflows into Nigeria and emerging markets.

The naira has declined for four straight days in the official market, closing at N1,308/$ on Wednesday, down from N1,300 the previous day, according to FMDQ data, as dollar liquidity drops.