6 December 2017

Nigeria: Q3 - Foreign Portfolio Investments Jump 259 Percent On Renewed Demand for Equities

Foreign Portfolio Investment (FPI) jumped by 259.2 per cent in the third quarter(Q3) ended September 30, 2017 to $2.77 billion, which is a consolidation on the increase recorded in second quarter of 2017 (Q2-17). The figures are the highest since the $5.13 billion recorded in Q3 of 2014. However, the sizable increase in FPI was mostly driven by a monumental 860.7 per cent year on year(y/y) surge in equities (214.6 per cent q/q) to $1.93 billion, accounting for 70 per cent of total FPI, and a grand leap (105.6 per cent y/y and 630.2 q/q to $719 million in capital investments in the form of money market instruments.

Corroborating the significant inflows into equities, the Nigerian Stock Exchange (NSE) latest report on FPI reveals that foreign inflows surged 205.7 per cent y/y and 64.3 per cent q/q to N252.33 billion in the three months to September, from N82.54 billion and N153.62 billion in Q3-16 and Q2-17 respectively.

Analysts at Cordros Capital Limited said the improved FPI and inflow into equities market stem from improving foreign exchange liquidity, boosting transparency in FX transactions, and increasing dollar inflows from autonomous sources) of the Central Bank of Nigeria (CBN)'s "Investors & Exporter's" FX window, established towards the tail end of April.

The policy is attracting offshore inflows amid appealing valuation - supported by positively changing macroeconomic fundamentals.

"Still supportive of the potency of the I&E FX window is the sizable increase in the total turnover in the window by 171 per cent q/q to $10.16 billion in the three months to September, compared to $3.74 billion in Q2-17, and by extension, the 52.76 per cent q/q increase in total turnover in the domestic bourse to N360.73 billion in Q3-17, from N236.14 billion in the previous quarter. Equally reflective of investor confidence in the I&E window is the 15.8 per cent q/q growth (to $114.65 billion, from $99.0 billion) in the total OTC market turnover in Q3-17, as reported by the FMDQ OTC Securities Exchange," the analysts said.

According to data released by the National Bureau of Statistics (NBS), capital inflows into the domestic economy expectedly recorded a notable improvement in the three months to September 2017, expanding by 127.5% y/y and 131.3% q/q to USD4.15 billion (highest since Q4-14), from USD1.82 billion and USD1.79 billion respectively.

As was the case in Q2-17, in terms of contribution, Portfolio Investment (259.2 per cent q/q and 200.7 per cent y/y to $2.77 billion) accounted for the most (67 per cent ) capital importation of $4.15 billion, from $1.82 billion.

"In line with our earlier guidance, the surge in capital imported into the country was driven by progressing improvement in the foreign exchange market, which, by extension, sustained the rally in the equities market, in addition to an attractive interest rate environment - attracting higher inflows into the fixed income space," analysts said.

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