Investors’ net worth on the Nigerian Stock Exchange (NSE) rose by N1.03 trillion on the new directive of the Central Bank of Nigeria (CBN) on opening a new foreign exchange window for investors.
The CBN on April 21, 2017 released a circular announcing the creation of a special forex window for exporters and foreign investors. The window signified a massive shift in the way forex will be priced. Departing from the fixed exchange rate regime associated with other windows introduced by the CBN, the exchange rate in FX window for investors and importers will be determined by the market. This was expected to entice foreign investors who showed apathy towards a policy of fixed exchange rate and capital controls. The new rule has been in place for about three weeks now and has seen the exchange rate between the naira and the dollar average N380.
Available statistics for the period under review, from April 21 to May 12, 2017 showed that the All-Share Index increased by 3,003.09 points or 11.92 per cent to close at 28,192.46 from 25,189.37 on April 21, 2017. The market capitalisation rose by N1.03 trillion to close at N9.746 trillion on May 12, 2017 from N8.716 trillion it closed trading on April 21, 2017.
Analysts have described the ‘preferential’ window as a way of weakening the naira for foreign investors with a view to boosting foreign portfolio investment, as the step is expected to soften the forex scarcity challenge faced by foreign business transactions.
They also said the launch of the CBN’s Investors’ and Exporters’ FX window which resulted in renewed optimism in equities as the window is expected to boost inflow from foreign investors.
The managing director of Dependable Securities Limited, Mr. Chinenyem Anyanwu said, “One thing with investors is that they are more interested in the way they repatriate their funds than the rate on the returns on investment.
“This window has given them the confidence that they can take out their money and the window lately has been trading above the street price, which means there is a lot of patronage on it. This is a positive development and has affected the market positively.”
Analysts at Afrinvest Limited said, “The depressed state of the Nigerian economy over the last two years has been broadly reflected in capital market activities. Foreign investors’ appetite for Nigerian assets has waned significantly on the back of currency crisis which in turn has fundamentally weakened macroeconomic performance, dragged corporate earnings and also impacted on equities market viability.”
According to them, this condition has also lingered into the year 2017 as investors have been dumping equities for less risky investment opportunities in the fixed income market especially given the current relatively high yield environment.
However, they noted that in April, investor sentiment strengthened following the commencement of the Investors’ and Exporters’ FX window which signaled a possible return of flexibility in FX rate determination, though multiplicity of rates at official windows is still a concern.
They added that recent improvements in global oil prices above the $45 per barrel mark, improvement in domestic production currently above 2.0mbpd, fiscal responsiveness, including the release of ERGP, successful issuance of $1.5 billion Eurobond, passage of 2017 budget as well as recent positive readings in manufacturing PMI, suggest possible rebound in economic activities from second quarter, 2017.
Also, the managing director of APT Securities and Funds Limited, Mallam Garaba Kurfi said that the current bullish trend in the market is majorly hinged on foreign investors’ perception on activities within FX market particularly with regards to the sustainability of the newly launched I&E FX window.
He stated that, “If managed appropriately, we expect to see influx of foreign investors which could potentially spark massive rallies in the market given the comparably cheaper valuation of Nigerian equities.”
Head Research, SCM Capital Limited, Mr. Sewa Wusu, said that stability around the foreign exchange challenges would be a strong impetus for market performance going forward.
Wusu added that the market liquidity would increase if the CBN current foreign exchange policy drive was able to attract foreign participation in the market.
He also said that the bullish resurgence witnessed so far was due to the release of impressive first quarter results by major companies, especially the tier one banks, saying that results released by some of the banks were impressive in spite of the level of provisions made for non-performing loans.
He explained that the performance of the market going forward would be dependent on the sustainability of earnings of companies and foreign exchange stability.
The chief operating officer of InvestData Limited, Mr. Ambrose Omordion added that continued naira appreciation ahead of the 2017 budget approval by the National Assembly is expected to kick start the government’s economic plan and accelerate economic recovery with right reforms and wholehearted implementation.
He stated that the stock market as a leading indicator of the wellbeing of the economy is actually pointing investors to where the economy and the market are heading and whether the economic fundamentals would continue to look up and in the process boost the performance of companies, saying if so, investors would be attracted to the stock market again and this recovery trend in the market sustained, at least in the medium term.