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Cardoso advocates for the regulation and increased hot money inflows, but foreign investors remain cautious
Data released by the Nigerian Exchange (NGX) indicates a decrease in foreign participation in the Nigerian equities market to 8.15% in January 2024, compared to 13.92% and 12.76% in the preceding months of 2023.
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Transactions in the Nigerian stock market amounted to N651.52 billion in January 2024, contrasting with N343.9 billion in the previous month.
Out of the total transactions, foreign portfolio investment contributed N53.11 billion, while domestic transactions were N598.41 billion during the same period. The decline in foreign investments is attributed to challenges such as FX instability and dollar illiquidity, hindering easy repatriation of earnings for foreign investors.
To manage FX volatility, the Central Bank of Nigeria (CBN) has implemented various reforms, including unifying the foreign exchange market and adjusting Net Open Positions for banks. Despite increased FX supply, the exchange rate remains around N1500/$ to N1600/$, emphasizing the need for fresh dollar inflows.
CBN Governor Yemi Cardoso engaged foreign portfolio investors to discuss reforms aimed at maintaining price stability and liberalizing the FX market to attract foreign investments. Key points include an assurance to avoid policy flip-flops to maintain foreign portfolio inflows and efforts to rebuild investor confidence through enhanced communication and transparency.
The CBN has increased the benchmark interest rate and Cash Reserve Ratio (CRR) to tighten naira liquidity and encourage inter-bank trading. Analysts suggest that the proactive measures by the CBN, including resolving the FX backlog, may enhance market confidence and attract renewed interest from foreign portfolio investors.
Victor Onyema, Lead of Portfolio Management at Norrenberger Asset Management, sees the CBN’s recent efforts as encouraging for restoring market confidence. The resolution of the FX backlog and potential rise in interest rates are viewed as opportunities that could attract Foreign Portfolio Investors (FPIs) and contribute to a positive outlook for the Nigerian investment space.
Overall, the CBN’s initiatives, combined with evolving market dynamics, indicate a potentially optimistic scenario for the Nigerian investment landscape, provided they unfold as planned by the central bank, boosting FPI confidence and attracting inflows.
