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Foreign appetite for Nigerian equities rose at its fastest pace in eight years to lift total transactions by 117 percent to N2.5 trillion in 2017 compared to 2016, the Nigerian Stock Exchange said in a report published Wednesday.
That’s the highest value since 2014, when transactions came to N2.67 trillion, according to data compiled by BusinessDay, as subsequent years leading to 2017 mirrored Africa’s largest oil producer’s struggles with lower oil prices and production which snowballed into acute dollar shortages and tipped the economy into its first recession in a quarter of a century.
At the centre of increased equity deals in 2017 was a 133 percent jump in foreign transactions to N1.2 trillion in 2017 from N518 billion the previous year, according to data analysed by BusinessDay.
Domestic transactions also contributed to improved deals, surging 110.6 percent to N1.3 trillion from N634 billion in the period under review.
“Nigeria is back on track, but how the government manages its political risk leading to the elections next year will make or mar market sentiments,” Tajudeen Ibrahim, head of research at Lagos-based Chapel Hill Denham told BusinessDay.
“The recently introduced multi-asset regulation will see more Pension Fund Administrators (PFAs) scale up their equity-holdings within the next two to three quarters and that will further boost domestic transactions this year,” Ibrahim added, responding to the increase in domestic activity on the bourse.
Nigerian equities climbed 2.44 percent Wednesday, settling at a 13.3 percent return year to date, as investors digested growth numbers released Tuesday by the NBS that showed the economy expanded 1.9 percent in the fourth quarter of 2017 compared to a year ago.
“The positive close of the market yesterday was driven by strong positive sentiment on counters across all sectors, as reflected by the positive close seen on all sector indices,” analysts at Lagos-based Meristem said in a February 28 note.
“We expect the positive trend to continue till the end of the week, although not as strong as seen yesterday.”
The Abuja-based NBS said in its GDP report that the oil sector grew for the first time in six years, by 4.3 percent, while the non-oil sector grew at its fastest rate (1.5 percent) in eight quarters. The services sector, the single largest contributor to GDP, grew for the first time in eight quarters, driven by wholesale and retail trade, indicating the consumer may be on the cusp of a recovery.
“This supports our view of more balanced economic growth in 2018, of 2.9 percent,” said Yvonne Mhango, the sub-saharan Africa economist at Russia-based investment bank, Renaissance Capital.
Foreign portfolio investors largely dumped Nigerian bonds and equities in 2016, as they were unable to find sufficient dollars to repatriate profits and were losing money on the back of sharp exchange rate fluctuations and weak corporate earnings.
The situation however took a turn for good following the rally in oil prices and creation of a window in April 2017 where bond and stock investors can buy dollars at a market rate. Nigeria is also exporting more crude, its largest foreign exchange earner, as militant attacks that cut production volumes in 2016 have largely dissipated.
The price of Brent crude, Nigeria’s benchmark grade, cooled 0.87 percent to $66 per barrel Wednesday, according to Bloomberg data. It has however almost doubled from its $38 per barrel average in 2016 thanks to supply cuts by OPEC petrostates and Russia in November 2016 to drain a glut that dampened prices.
Oil production on the other hand has recovered to 1.8 million barrels as at January 2018, according to OPEC data, from as low as 1.2 million barrels daily in the thick of militant disruptions.
These factors contributed to lifting the economy from recession in the second quarter of 2017, according to the National Bureau of Statistics (NBS). The economy has consolidated its exit from recession after growing 0.8 percent in 2017 compared to a 1.6 percent contraction the previous year.
With dollars flowing again and the economy expanding, investors are finding Nigerian assets hard to resist. Nigerian equities rallied to a world-beating 42 percent return last year from a negative 4 percent in 2016. The cheap valuations of most stocks continue to make them a bargain.
More dollars piled into Nigeria than exited through the Central bank in 2017, as inflows outpaced outflows for the first time since 2012, according to data compiled by BusinessDay and sourced from a report on the apex bank’s website that put net flows at $12 billion.
An equal share of increased inflows and reduced outflows led to the positive net flow in 2017, as inflows surged 15.59 percent to $41.7 billion from a seven-year average of $36.1 billion within 2010-2017, while outflows fell identically by 15.43 percent to $29.1 billion from an average of $34.4 billion.
That’s the first positive net flow since 2012, when inflows outpaced outflows by $10.4 billion.
In 2016, outflows outran inflows by $914.9 million, while negative flows of $252.9 million, $7.3 billion and $1.2 billion were recorded in 2015, 2014 and 2013 respectively.
The rise in external reserves and relative exchange rate stability confirm improved dollar flows to the CBN coffers.
Gross external reserves have jumped some 20 percent to cross the $40 billion mark this year compared to 2016.
LOLADE AKINMURELE
