Information obtained by Businessday from the domestic and foreign portfolio investment report of Africa’s second largest securities market shows that net inflows from foreign portfolio investors (FPIs) came to $20 million in October 2016 as the FPIs put in more money in the market than they took out.
Having recorded the biggest plunge in transactions value between August 2016 and October 2016 as total transactions declined 45 per cent from $386 million from the beginning of the period to $210 million as at the end of the period, the NSE saw FPI outflow drop 34.46 per cent, from $63 million in September 2016 to $42 million in October 2016.
Analysts at City Securities Limited (CSL) a leading institutional and corporate stockbrokers in the nation’s financial capital, say that the net increase recorded in the period is only natural as the foreign exchange (FX) market has been troubled recently and investors sought to maximize returns to their money.
“The foreign portfolio investors can even do more than they are doing at currently, but they need more predictable FX market,” the analysts said.
“For them to invest, the will have to convert their foreign currency to domestic currency”
The NSE report stated that both foreign and domestic activities are decreasing, but that domestic activity is decreasing faster as transactions shrank by 36 per cent from $169 million in September 2016 to $108 million in October 2016, compared to FPI transactions that decreased by 28.33 per cent from $143 million in September 2016 to $102 million in October 2016.
Austin Ejola, head of securities trading at Planet Capital Limited, an investment banking firm said that FPIs have historically been the greatest players in the market and that retail investors have strong apathy for the market.
“It may not really be a matter of confidence or lack of confidence alone,” said Austin. “Domestic institutional investors have witnessed challenges recently. For instance, the pension fund administrators witnessed a drop in inflows of funds because of the recession. More people lost jobs so the monthly contributions declined and reduced the capacity of the PFAs to make fresh investments”
Austin agreed with the CSL analysts that FPIs will stake more money in the country’s bourse if the current FX challenges are resolved.
He added that the valuation of most stocks in the market is also giving the investors incentive for increased investment considering that equities are currently under-priced.
Meanwhile, analysis of equity transactions on the NSE for year ended 2014 and 2015 showed that FPIs invested more in equities than domestic investors in 2014 and 2015, with 58 per cent and 54 per cent of the total investments, respectively.
But as at October 2016, there has been a decline in the proportion of FPI investment in 2016 to 45 per cent as total investment declined consistently from $5 billion in 2014 to $3.4 billion in 2015, and then to the current level of $1.5 billion.
Further analysis of the report also shows significant shift in FPI which outperformed domestic investments between 2011 and 2012, with a major rebound in the domestic component of all investments that led to a nearly balanced component of foreign and domestic transactions.
“The level of FPI investments would have being higher if not for the challenges they experience in the repatriation of their funds. As soon as the FX issues begin to get better, they will come back gradually,” Austin concluded.
An analyst at one of the leading investment banks who preferred not to be named, said that the increase recorded in the period may not really be an indication that the FPIs are coming back as new funds are not coming in.
“I don’t think they (FPIs) are coming back. There is no improvement in the currency situation,” the analyst said.
The analyst averred that what is happening could be a re-investment of returns on the form of dividends that the FPIs could not take out.
“There can be no fresh inflows until the currency market is liberalised,” the analyst concluded.
INNOCENT UNAH
