Lack of reforms, others may sideline foreign investors from stocks

*As investors’ wealth decline by N16bn amid Airtel, Nestlé dip

By Motolani Oseni

As Nigeria goes into 2023 with a lot of activities, including the national elections beginning from next month, among many other events that would shape the growth of the largest economy in Africa, indications are rife that Foreign Portfolio Investors’ (FPI’s) may shun the country’s capital market, due to lack of unfriendly market policy reforms.

This is even as investors on the Nigerian Exchange (NGX) lost about N16 billion in the first trading week of 2023, due to large knock off at the mid-week (Wednesday) when investors shed N430 billion in a day trading session – driven by selloffs in most valuable listed stock, Airtel Africa.

Analysts at Cordros Securities in their latest projection for the New Year, however, stated that the lack of robust and market-friendly policy reforms such as trade restrictions, lack of flexible FX framework, and insincere monetary policy actions will continue to keep foreign investors on the sidelines.

The analysts in their 2023 outlook report titled: ‘Nigeria in 2023, Charting through a Pervasive Slowdown’, stated that “Over the short-to-medium term, we do not expect the current liquidity conditions to retrace towards pre-pandemic levels due to still weak inflows from foreign investors (53.8% of total IEW inflows in 2019FY).

“We think foreign investors will need more convincing actions from the CBN regarding flexibility and clarity in the foreign exchange framework before a resurgence of interest in the market, as witnessed in 2017FY when the IEW was established,” they said.

Their projection on Yields: The analysts acknowledge that yields will remain slightly elevated in 2023 due to a combination of weak market participation, monetary policy stance globally and domestically, a widening fiscal deficit, and a weak macroeconomic environment.

However, they do not expect a significant expansion in yields in 2023 considering the unwillingness on the part of DMO to allow yields to trend significantly upward due to rising debt sustainability concerns.

“Overall, we estimate that the average yields on Treasury bills and bonds will increase in the year and settle at 12.8 per cent and 15.5 per cent by the end of 2023FY,” they said.

They noted that they expect investors positioning for 2022FY results ahead of upbeat corporate earnings and re-investment of dividends to drive bullish sentiments in Q1-23.

Impact of 2023 elections: In the latter part of the year, the analysts believed that market sentiments will be shaped by a combination of the outcome of the 2023 elections, market-friendly policy or reforms, the direction of monetary policy, and the impact on fixed income yields, sector-specific events, and the weak macroeconomic environment.

“Investors’ perception of the nation’s general political cum economic outlook is a significant factor to consider, given the forthcoming general elections. This is because sentiments tend to turn bullish when investors have a positive outlook on the economy while assessing the monetary and fiscal plans and policies set out by a candidate with a likelihood of emerging triumphant at the polls.

“However, a negative perception of the economic outlook will likely drive portfolio rebalancing to safe-haven assets. Notwithstanding, we expect a muted impact from any tensions arising from the electioneering process, given that foreign investors’ participation in the market is limited relative to previous election years.

“We note that the economic and political stability after the general elections could attract more capital inflows into the equities market. In other words, only non-violent or peaceful polls could restore investors’ confidence in the equities market, spur a bullish outcome and bolster the expected recovery post-election.

“Elsewhere, foreign investors will likely remain on the sidelines as the FX liquidity challenge is expected to persist (due to weak crude oil output and limited access to international debt markets,” they said.

Meanwhile, the NGX for the week under review, actually consolidated on bargain hunting that started seven weeks ago apart from profit taking in the telecom shares.

The local bourse was a better hunting ground in 2022, delivered 20 per cent return last year over sustained interest in value, growth stock.

At the close of the first week in the New Year, the benchmark index declined by a marginal 6 basis points week on week to 51,222.34 points and a negative index return of 0.056 per cent.

Similarly, the market capitalisation of listed equities tanked N15.64 billion across four sessions this week to N27.89 trillion from N27.91 trillion in the prior week’s close.

Across the sectors on the NGX, the performance was largely bullish across the most of the indices tracked except for the Industrial sector which trended southward (-0.58%). Nigerian Treasury Bills Yield Falls to 4 per cent, Bonds Steady

On the contrary, the Consumer Goods index led the gainers’ chart this week after closing +6.44 per cent from last week and was followed by Banking (+4.27%), Insurance (+2.68%) and Oil and Gas indices which also gained by +0.06 per cent.

NAHCO share price popped up 16 per cent, NB gained 14.6% and BUAFOODS rose by 14.6 per cent to emerge as top gainers. Meanwhile, the laggards were CHAMPION (-16%), AIRTELAFRI (-5.2%) and NESTLE (-2%).

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Market data show that trading activities declined as the total traded volume slumped by 50.96% week on week to 921.86 million and the total traded value plummeted also by 19.12% week on week to N15.36 billion.

However, the total deals traded for the week surged by 29.63% week on week to 15,601 trades. “We believe positioning for 2022FY earnings releases and accompanying dividends declarations will continue to support buying activities on the local bourse even as institutional investors continue to search for clues on the direction of yields in the fixed income market”, Cordros Capital said in a note.

Stockbrokers at Cowry Asset Management said in market report that they anticipate mixed trend on profit taking and positive sentiment to pervade the market in the coming days as bargain hunting activities continues ahead of the January effects and volatility just as the market pullbacks add more strength to the upside potential of the index.