Happening Globally

Confidence Returns On CBN’s FX Market Reform, Bright Economic Outlook

With close to N4 trillion gain recorded at the stock market post-presidential inauguration and renewed confidence that followed recent change in the central bank of Nigeria (CBN), stakeholders have expressed confidence that the outlook of the domestic economy is bullish with the hope that things will continue to get better as government begins implementation of its major policy thrust. A day after President Bola Tinubu’s assumption of office, the stock market posted a gain of N1.5 trillion, a rare occurrence. On Monday, following a leadership change at the CBN that brought in Folashodun Shonubi, the capitalisation spiked again by approximately four per cent or N1.2 trillion. Investors’ confidence is uptick with foreign investors said to have started aggressive stock acquisition with their dividends and proceeds of the stock sale, which they have been unable to repatriate home. Indeed, the stock market mirrors broader rising confidence in the Nigerian economy – reflecting rising business leads. The confidence level was further fueled by Wednesday’s bold decision by the apex bank to activate the long-awaited rates harmonisation around the Investors’ and Exporters’ (I&E) window, a policy that promises to restore sanity to the market. The rates harmonisation underscores the responsiveness of the CBN to the new administration’s agenda on economic growth and job creation. The President had disclosed that he would create additional one million jobs through the digital economy and grow the economy by six per cent. While x-raying the economic outlook and impact on the capital market, stakeholders said there is an urgent need to build on the level of confidence the rates harmonisation has raised and pursue appropriate pragmatic strategies that would aid faster execution of reforms. Less than a month into the new administration, foreigners who have been waiting on the wing seem to watching the economy with renewed interest. Findings by The Guardian revealed that foreign investors are excited about the economy. They had remained on the sideline due to uncertainty and macroeconomic challenges that bedeviled the nation’s political space over the years, but are now showing interest in the market again. They are currently reinvesting the backlog of dividends, which they could not repatriate over the years due to the scarcity of FX in the equities market. It was learnt that more local players that were showing apathy in the market are scrambling for shares in repositioning ahead of foreign portfolio investors’ participation. Paul Uzum Head of Equity,Planet Capital, Paul Uzum , said foreign investors are reinvesting the backlog of cash they could not repatriate over the last three years. “Foreign investors are reinvesting the backlog of cash they could not repatriate over the last three years. We are yet to see an inflow of fresh funds. Most of the activities in the market at the moment are driven by local investors, who are anticipating foreign investors to join soon. “This is one of the pillars of economic recovery. It is a good one for the banks as they will be declaring bumper profits when they translate their accumulated dollar reserve using the harmonised exchange rate. We expect to see these positive impacts from Q3 2023,” he said. Uzum added that government’s actions so far are an indication that brilliant adversaries jettisoned for years are coming to play to jumpstart economic growth. As part of efforts to consolidate the gains, Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, said the securities exchange’s data aggregation centre needs to aggregate foreign-related mandates and make them public. “What brings capital inflow is the ease at which transactions can be consummated at the point of entry and point of exit, which the new foreign exchange market regime is intended to achieve,” he said. National Coordinator of the Independence Shareholders Association of Nigeria (ISAN), Moses Igbrude, said if the renewed hope is sustained and promises kept, Nigeria would become an investment hub in Africa. “There are many retrogressive policies that are disincentive to investments. If the President and his team will garner the political will to pursue these reforms more vigorously, Nigeria will become a great country again,” he said. Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella, said foreign investments would begin to return once they are sure that they would be able to repatriate their profits. He said the harmonisation of FX rates and other positive reforms of the monetary tools have sent a strong positive signal that Nigeria is ready for business Nigeria Exchange Group Plc, Mr Oscar Onyema Also speaking, Group Chief Executive Officer, Nigerian Exchange Group (NGX Group), Oscar Onyema, expressed optimism that the nation’s economy would witness more investment inflows in the coming years. Onyema lamented that foreign transactions on the exchange decreased by 38.5 per cent from N616 billion in 2007 to N379 billion in 2022 owing to forex crisis, which the rates convergence seeks to address. According to him, foreign transactions accounted for about 16 per cent of the total transactions in the first four months of 2023, while total foreign transactions currently stand at N62.18 billion in the same period. He expressed the hope that there are bound to be more investment inflows into the country shortly. “Money goes to the least resistant places where it can get the best risk-adjustment returns without unnecessary hassles because there is competition across the globe. “There has been an outflow of foreign portfolio investments predominantly in the last eight years and more than half of our markets are outside of America. But with these policy changes, you can begin to understand why we are very optimistic that these flows will come back and attract additional flows,” Onyema said. Head FSL Securities, Victor Chiazor, said there is need for forex to be readily available for investors, noting that foreign investors are interested in forex liquidity and the availability of forex to willing buyers. He added that the liquidity constraints would ease with the new FX management approach. “Any foreign investor will want to monitor the forex situation to see the level where the market will eventually settle. They will be more interested in the forex liquidity in the market and the availability of FX to willing buyers. “Until foreign investors are confident the market is liquid enough to absorb their transaction on both the buy and sell side, most investors will remain on the sidelines.” Specifically, the market capitalisation of listed equities which stood at N28,844 trillion on Friday, May 26, 2023, the weekend preceding the day of the inauguration, rose by N3,818 trillion or 11.7 per cent to close at N32,662 trillion on June 14, 2023. Similarly, the All/share index, which measures the performance of quoted companies appreciated by 7,011.22 points from 52,973.88 points to 59,985.10 points. The market capitalisation, which closed N30,454 trillion as of Friday, June 9,2023 rose by N2,208 trillion or 6.8 per cent to N32,662 trillion on Wednesday, June14, 2023. Also, the All-share index which measures the performance of quoted companies appreciated by 4,054.13 from 55,930.97 points to 59,985.1. For the fixed-income market, system liquidity opened the day at ₦156 billion, however, the interbank call rate eased 10bps to close at 11.6 per cent. According to analysts at Vetiva Research, the market traded quietly yesterday, as trades in the bonds space were few and far between. “The only activity recorded in the space, was on the 16.2499 per cent FGN-APR-2037 bond, evidenced by the 6bps easing in its yield to 15.35 per cent. Likewise, it was a muted session in the NTB segment, as yields closed flat for the day. We anticipate another subdued session in the secondary market, barring any significant improvements to system liquidity.” Analysts at Cordros Capital said: “The overnight lending rate contracted by 10bps to 12.1%, in the absence of any significant funding pressure on the system. “Trading in the treasury bills secondary market was bearish, as the average yield expanded by two bps to 6.3 per cent. Across the curve, the average yield expanded at the short (+12bps) end following sell pressures on the 91DTM (+35bps) bill but closed flat at the mid and long segments.” Meanwhile, proceedings in the Treasury bonds secondary market were quiet, as the average yield closed flat at 13.8 per cent. Across the benchmark curve, the average yield closed flat at the short and mid segments but pared at the long (-1bp) end as investors demanded the APR-2037 (-6bps) bond. The stakeholders who argued that the market is information driven insisted that the spikes that followed the inaugural speech could only be sustained if government at all levels, including the citizenry become more cautious and avoided any actions and decisions that could send wrong signals and erode investors’ confidence in the market. Recall that market had returned six per cent gain within three trading sessions as market capitalisation increased by N1,550 trillion from N28,844 trillion recorded on Friday, May 26, 2023 to N30,394 trillion on Friday, May 2, 2023. Also, the All-share index increased by 2,846.62 points from 52,973.88 to 55,820.5. In comparison, Johannesburg, South African exchange’s All Share Index gained 3.2 percent in May, 2023 while Ghana’s GSE composite index returned 2.76 percent. Kenya lost 18.66 per cent in the same period. In April, 2023 investors’ fortunes had depreciated by N1.74 due to lingering economic challenges resulting in uncertainty, inflation and insecurity. The month came with scanty trading sessions owing to public holidays with the bears outperforming the bulls on most of the days, which led to a sustained month-on-month decline of about N1.74 trillion. Precisely, the market capitalisation, which opened the month of April at N30.24 trillion, depreciated by N1.74 trillion to close at N28.5 trillion. The All-share index (ASI) equally declined by 3.4 per cent from 55.508.61 to 54, 403. 51. Also, the stock market resumed May trading with N58 billion in losses. Specifically, at the re-opening of transactions for May, the All-Share Index (ASI) fell by 107.03 points, representing a decline of 0.20 per cent to close at 52,296.48 points. Accordingly, investors lost N58 billion in value as market capitalisation declined to N28.476 trillion. The market had declined by 1.9 percent and 0.8 per cent in March and April respectively amid profit-taking by investors, uncertainties about the build-up of the February elections as well as rising inflation. Indeed, the nation’s capital market has recorded an unprecedented lull due to volatile forex and macro-economic concerns. Foreign portfolio flows to emerging markets, especially Nigeria had turned negative. This is in spite of strategies and strict regulatory framework and reforms introduced by the regulators to reposition the market for sustainable growth. The long reign of bears has become a cause for concern to both retail and foreign investors. For retail investors, the continuous depreciation in stock prices has become a justification for their apathy to investing in the stock market. The foreign investors which constituted about 70 percent of participants on the exchange hitherto, are currently holding on to their investments while a few of them with high risk appetite are simply engaged in speculative trading. Tinubu, in his inaugural speech, declared that industrial policy will utilise the full range of fiscal measures to promote domestic manufacturing and lessen import dependency. “Electricity will become more accessible and affordable to businesses and homes alike. Power generation should nearly double and transmission and distribution networks improved. We will encourage states to develop local sources as well. “Local and foreign: our government shall review all their complaints about multiple taxations and various anti-investment inhibitions. We shall ensure that investors and foreign businesses repatriate their hard-earned dividends and profits home” among others.

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