Economy & Market

First Positive Net Offshore Flows in 10 Months: Is CBN Pulling its Weight?

This week, we focus on the NGX Domestic & Foreign Portfolio Participation report for the month of March. For context, the report tracks transactions on the domestic bourse and provides insight into the relative contributions of domestic investors and their foreign counterparts. In the current context of challenged capital importation into the economy, the data serves as a barometer to ascertain the attractiveness of the local market to international funds, albeit with emphasis on equities trading.

In March, total transaction on the NGX rose by 50.5% m/m to ₦538.5bn with respective transactions executed by domestic and foreign investors up by 52.1% and 43.2% accordingly, to ₦444.3bn and ₦94.3bn. Compared to corresponding period in 2023, transaction size advanced 268.3% while local and foreign transactions firmed up by 224.2% and 925.7% respectively. Against this backdrop, the share of domestic players increased by 89bps to 82.5%, while offshore investors accounted for a share of 17.5%. Overall, the participation of offshore investors was mildly better at 13.8% YTD in 2024 compared to the prior year (10.1%).

Decomposing the transactions of foreign investors, we highlight that offshore inflows improved by 111.2% m/m to a multi-year high of ₦52.7bn, relative to the 1.8% growth in outflows (₦41.6bn). Put together, the net balance of ₦11.1bn was the first positive inflow by offshore investors since May 2023, where ₦17.9bn net inflow was recorded. Interestingly, the total participation of ₦94.3bn was also the highest level for the investor group since March 2020.

Our analysis shows that unlike February where 58.0% and 9.5% respective (Naira) increase in inflows and outflows of foreign investors corresponded with a decline of 1.5% and 31.7% in dollar terms, March had a strong increase despite currency appreciation in the period. Precisely, average exchange rate improved by 0.2% m/m in March which confirmed the improvement in foreign transaction was not due to exchange rate translation.

We opine that the improved outlook of foreign investors was inspired by both Central Bank of Nigeria’s (CBN’s) stance on inflation and stabilising Naira. Although higher interest rates tend to be negative for stocks, in theory, we believe the MPC’s vote to raise interest rate by 600bps to 24.75% between February and March was indicative of CBN’s tough stance on inflation and need for currency stability, by extension. As earlier noted, the appreciation of the Naira by 0.2% based on average exchange rate in the month provided comfort for offshore investors to take advantage of cheap prices of equities and reposition in the bourse.

Looking forward, we maintain a cautious outlook for foreign inflows into the bourse. We highlight that probability of emerging and frontier markets suffering outflows has heightened as US inflation quagmire force less optimistic view on a mid-year Fed rate cut. Also, concerns around the headwinds limiting earnings performance of non-financial services sectors remain on the horizon. On the upside, we anticipate that the earnings season and corporate action could provide support for the equities market.


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