Lagos stocks have just wrapped up their best week since January, but it’s no thanks to foreign investors.
They have been steering clear of the market, resisting reduced valuations on some of Nigeria’s biggest companies, concerned that a shortage of dollars may restrict their ability to realize any profits. The country’s benchmark index jumped 7.2% last week, closing out a seven-day rally.
“Foreigners are net sellers and locals are net buyers, as assets look very cheap in naira terms,” said Temi Popoola, the head of Renaissance Capital’s local unit. “If you are a foreign investor, you still have the currency risk. It is not clear what direction we are going.”
Foreign investors’ purchases of Nigerian stocks and bonds dropped to $266 million in March and the first half of April, the lowest since the Investors’ and Exporters’ Foreign Exchange Window was opened in 2017, according to data from the FMDQ OTC Securities Exchange, the Lagos-based platform that oversees foreign-exchange trading.
Locals are positioning for dividend payments from Nigerian blue-chip companies, unworried by the paucity of foreign exchange, caused by the crash in crude oil prices and the coronavirus pandemic. Dollar trading has remained quiet in Nigeria’s interbank foreign exchange market, Johannesburg-based Rand Merchant Bank said in a note last week, while foreign exchange reserves have dwindled 12% this year to $33.9 billion.
The outlook for foreign interest in Nigerian equities hinges partly on how the government sets about to revive the economy of Africa’s largest oil producer from the ravages of the coronavirus, said Randolph Oosthuizen, an analyst at Old Mutual Investment Group in Cape Town.
“The next few quarters will be very difficult for Nigeria, but we await more granular information on policy responses,” Oosthuizen said in an emailed response to questions. “New inflows will in large part probably be based on how these are received by the market.”
The Nigerian Stock Exchange All Share Index was little changed by the close in Lagos on Monday.