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CBN: $2.2b foreign capital inflow boosts equities

The Central Bank of Nigeria (CBN) has linked the current upbeat performance in the Nigerian Equities market to the inflow of $2.2 billion foreign capital from portfolio investors.

The cash came in through the special Investors/ Exporters (I&E) Forex Window launched last April, according CBN Director, Banking Supervision, Abdullahi Ahmad.

The creation of the special window is to attract foreign portfolio investment in the equities market.

Ahmad said investor sentiment towards equities has remained bullish since the introduction of the I&E Forex window.

The CBN director was optimistic that the new forex window would continue to attract foreign investors to the economy with the equities market and naira the biggest beneficiaries.

Under the former dispensation, uncertainty about availability of forex, coupled with some tough fiscal policies in the year, were largely blamed for investors’ lack of confidence to invest in equities.

Between January 4 and June 9, 2017, the Nigerian Stock Exchange, mirrored by the All-Share Index and Market Capitalisation had appreciated by 23.8 per cent and 24.4 percent respectively. Both indices had opened the year for trading with 26,874.62 bases points and N9.247 trillion and grew to 33,276.68 bases points and N11.504 trillion within the period under review.

Last week alone, the All Share Index gained 1.6 per cent to close at 33,810.56 points, pushing year-to-date gain to 25.8 per cent. Accordingly, investors gained N187.9 billion within the week as market capitalisation improved to N11.7 trillion.

Managing Director, Afrinvest West Africa Limited, Ike Chioke although optimistic that the upbeat market performance would persist in the near term as investor sentiment remains largely driven by strengthening macroeconomic fundamentals and forex management, he believes there  could be  some profit taking by investors on value stocks in the early trading sessions of this week.

However, Currencies Analyst at Ecobank Nigeria, Olakunle Ezun, is of the view that the gains seen in the equities market are just unfolding.

Many investors with foresight, according to him, will continue to take advantage of low prices of quoted stocks and make more investments to maximise returns, thereby triggering further market rally.

He says as long as the I&E Window remains active, and the CBN continues to intervene in the forex market, the rally in the equities market will persist.

The CBN has, since February this year, injected more than $5 billion into the interbank market, to boost dollar liquidity and strengthen the naira. That dollar inflow has also helped build more confidence in the equities market, Ezun said.

The apex bank increased the availability of forex in order to ease the difficulties encountered by Nigerians in obtaining funds for Foreign Exchange transactions. The regulator is providing direct additional funding to banks to meet the needs of Nigerians for Personal and Business Travel, Medical needs, and School fees, effective immediately.

Part of the market upbeat has been linked to payment of impressive dividends by banks to shareholders, and that has attracted more investments.  For instance, Shareholders of Access Bank Plc, Guaranty Trust Bank Plc, United Bank for Africa Plc and Zenith Bank Plc, reaped the benefits of their investments as the four banks gave out a total of N168.29 billion as dividends for the 2016 financial year.

However, Chioke said of particular concern is the renewed volatility in oil prices and significant spread between interbank and the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) exchange rates.

The NAFEX, which is a polled rate derived from FX rates submission, from a selection of Authorised Dealers participating in the I&E FX window

He said the volatility makes the recent recovery in the forex rate fragile until a large depreciation is effected in the Interbank market to converge to autonomous market rate. “However, devaluing interbank rate is a political decision as much as it is a monetary policy one, as petroleum product prices are correlated to interbank exchange rate. Thus, we do not expect any changes in monetary policy or market interest rates in the near term until a convergence in exchange rates and sustained stability in core prices,” Chioke said in an emailed report.

Analysts said that given the huge loses investors had suffered since recession started, there have been efforts to ensure that the market recover quickly. In this regard, regulators such as the Securities and Exchange Commission (SEC), the CBN and the Nigerian Stock Exchange (NSE) have been strengthening the regulatory frameworks to encourage and reassure stakeholders. They also insist that the sustainability of the market depends on whether the CBN will sustain its forex intervention policy.

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