NSE: Investors’ Networth Rises By N1.03trn On New Forex Directive

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.