Pressure on Naira hinders return of foreign portfolio investors

Continuous pressure on the Naira is also working against the return of foreign portfolio investors to Nigeria.

Other aggravating factors are Nigeria’s diminished foreign reserves and decreasing earnings.

Many foreign portfolio investors exited the Nigerian capital market following concerns over falling oil prices, the country’s general elections and its declining currency.

In 2014, foreign portfolio investors pulled out over N700bn from the stock market, forcing the Nigerian Stock Exchange All-Share Index to close the year with a negative return of 16.14 per cent. Between January 1 and February 28 this year, they pulled out additional N132.53bn and brought in N100.38bn.

The market was expected to recover after the peaceful conduct of the elections but that hasn’t been the case.

Experts have said that the investors are not rushing back to the country because the economic fundamentals have not changed.

“Now, when they come in and your currency depreciates further, even when they make capital gain, that capital gain will be eroded by exchange losses. So, they want to come in when they think your exchange rate has bottomed out,” Johnson Chukwu, Managing Director and Chief Executive Officer, Cowry Asset Management said.

“However, if your earnings are declining; then, they are not sure the exchange rate has bottomed out. So, they are really particular with your reserves and foreign exchange earnings. That is what gives them the assurance to come in,” he added.

The Chief Executive Officer of Enterprise Stockbrokers, Rotimi Fakayejo, further explained that many more investors would need to return before the market could recover.