Nigeria’s stocks market is experiencing a resurgence of foreign investment, marking a significant turnaround after a period of decline. CEM REPORT, CAPITAL MARKET| This renewed interest comes after a series of reforms implemented by the Central Bank of Nigeria (CBN) aimed at improving investor confidence and market transparency.
Data from the Nigerian Exchange Group (NGX) reveals a dramatic increase in foreign inflows during the first quarter of 2024. Compared to the same period last year, foreign investment jumped a staggering fivefold, reaching N93.37 billion. This figure also represents the highest level of foreign inflows in any three-month period since 2019.
According to analysts, several key reforms by the CBN have been instrumental in attracting foreign investors back to the market. These include:
Settlement of FX Backlog: The backlog of foreign exchange requests that had previously hampered investment activity has been addressed.
Market-Determined Exchange Rate: The CBN has shifted towards a more flexible exchange rate system, reflecting market forces.
Credible Monetary Policy: The implementation of a more predictable and transparent monetary policy has instilled greater confidence in investors.
Naira Devaluation Not the Sole Driver
While the naira devaluation played a role in the increased foreign investment, analysts emphasize that it’s not the sole factor driving the trend. Notably, foreign inflows have risen by over 400% despite a near 60% depreciation of the naira since June 2023 due to CBN devaluations. This suggests that improved investor confidence is the primary driver of the surge.
Balancing Inflows and Outflows
The first quarter of 2024 also saw a significant increase in foreign outflows, totaling N119.81 billion, compared to N35.59 billion in the same period of 2023. This resulted in a negative net foreign inflow of N26.44 billion. However, experts believe this outflow primarily reflects the settlement of previously trapped funds rather than a decline in investor sentiment.
Local Investors Lead the Charge
While foreign investment is making a comeback, it’s important to acknowledge the dominant role of local investors in the recent market surge. Local investors, both retail and institutional, contributed a staggering N1.3 trillion to trading activity in the first quarter, more than double the amount invested by foreign investors. This strong participation by domestic players highlights growing confidence in the Nigerian stock market.
Sectoral Performance
The first quarter of 2024 witnessed a remarkable 39.84% growth in the Nigerian stock market, ranking it as the world’s best performer during that period. This impressive rally was driven by several key sectors:
Industrial Goods: Companies like Dangote Cement, BUA Cement, and Lafarge Cement saw their share prices surge by 78%, propelling the industrial goods index upwards.
Consumer Goods: Nestle, Nigerian Breweries, and other consumer goods companies experienced a 43.66% increase in their stock prices, contributing to the consumer goods index’s strong performance.
Banks: The banking sector also witnessed growth, with the banking index rising by 14.76%. However, recent data indicates a 12.07% decline in the banking index as of April 19, 2024. This pullback is attributed to the CBN’s announcement of a recapitalization exercise and the potential for share dilution through rights issues.
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Beyond Stocks: Fixed Income Market Attracts Foreign Capital
The improved investment climate isn’t limited to the stock market. A significant inflow of foreign dollars has also been directed towards the fixed income market, fueled by the CBN’s record-breaking interest rate hike to 24.75%. This increased demand for Nigerian bonds has contributed to a more stable naira exchange rate.
If You Ask Me
Overall, the Nigerian stock market is experiencing a period of renewed optimism, fueled by increased foreign investor participation and strong local investor activity. The CBN’s reforms appear to be paying dividends, fostering an environment that is more attractive to both domestic and international investors. While some headwinds persist, particularly concerning the naira’s value and the recent banking sector recapitalization policy, the future of the Nigerian stock market appears cautiously optimistic.
However, rising geopolitical tensions have led to a strengthening dollar, which could dampen foreign inflows into Nigeria and other emerging markets.