Nigerian bourse and destabilising influence of foreign investors
The Nigerian capital market has witnessed enormous capital flight and sell-off from the foreign investors in the past few years, owing to the nation’s adjudged gloomy macroeconomic outlook and heightening political risks.
The ensuing sell down by foreign investors, who play dominant role in the nation’s stock market, have therefore, caused many blue chip companies quoted on the bourse to experience huge losses within the period and depressed the market more.
Capital flight is the uncertain and rapid movement of large sums of money out of a country. The UK Overseas Development Institute (ODI) defines capital flight as “the outflow of resident capital, which is motivated by economic and political uncertainty.”Figures from the Nigerian Stock Exchange (NSE) showed that N435.41 billion was withdrawn from the market from January to July this year, compared to an outflow of N236.32 billion in the same period of 2017.
Furthermore, foreign investors pulled out N1.77 trillion from the nation’s stock market in the last two years, citing insecurity and economic uncertainties. Many blue-chip companies quoted on the stock exchange also experienced huge losses within the period.Specifically, N435.31 billion in foreign portfolio investment outflow was recorded in 2017, while foreign investors withdrew N642.65 billion during the corresponding period in 2018.
This buttresses the fact that while the large presence of foreign investors in the market signifies strong attraction to the country, their sudden reversal also portends great danger, exemplified in the bearish mode witnessed presently in the market.Apparently irked by the spillover effect and volatility caused by over-dependence on foreign investors in the nation’s stock market, capital market stakeholders, at the weekend, stressed the need for government to seek ways of moderating the destabilising influence of foreign portfolio investors in the Nigerian capital market by boosting domestic participation in the market.
The stakeholders attributed part of the current depression in the market to sell down by foreign investors, who account about 51.57 per cent of market transactions as at January 2018, while domestic transactions constituted about 49 per cent during the same period.According to them, if government promotes national savings culture through the provision of appropriate incentives, there would be more equities patronage by retail investors and increased stock market investment.
They underscored the need to generate more savings within the country through incentivised voluntary measure to substitute foreign capacity.The stakeholders also hinged stock market’s growth on improved long-term savings, noting that increased savings would accelerate development and bolster the economy.
The Publicity Secretary of Independent Shareholders Association, Moses Igbrude, said the quantum of savings in an economy has a multiplier effect on its investment, adding that long-term savings will spur activities in the primary market segment and accelerate economic growth.To mobilise long- term savings, Igbrude submitted that government must introduce the right incentives to encourage more people to save on a long-term basis.
Furthermore, he said electronic transfer of funds would boost financial inclusion, boost investors’ confidence and encourage more investment in the market.The Chief Relationship Officer of Foresight Securities and Investment Limited, Charles Fakrogha, explained that if there were no savings, there would be no investment.
According to him, Nigerian workers need to embrace the culture of savings to provide more viable exit plans in the face of voluntary or compulsory disengagement.He added that these savings would be channeled to stock market where the individual can monitor the movement and performance of the stocks and take appropriate investment decision.
“In basic economics, if there is no savings, there will be no investment. So, people are encouraged to develop savings habit. Savings should be a habit. If you pay me one million and I cannot save anything, if I am paid 10 million, I cannot save also.
“It is a culture that needs to be developed and once it is developed in Nigeria, we will have enough savings and can now channel these savings to investment in the capital market and other areas of the economy.“We advice professionals and other workers to invest in the stock market where they do not need any body to monitor their investment. They can monitor their investment by themselves.
“If you have a monthly salary of N10,000 and straight for 12 months, which is N120,000, you can now invest part of it in blue chip companies in the capital market and it will be beneficial to the economy, to you as an individual worker and the capital market in general.”
An independent investor, Amaechi Egbo, argued that there was also need for market participants to explore various mechanisms and mobilise savings to boost liquidity in the market.He noted that there is no support for the market currently due to illiquidity, adding that there is a need for a proper national savings plan that would enable people put money aside for investment with assurance that they will get some kind of incentive to stimulate appetite for such policy.