Trapped Foreign Investors Invest in Nigerian Stocks, OMO Bills

By Dipo Olowookere

Some foreign portfolio investors, who sold off their Naira investments before and shortly after the lockdown in Nigeria in high hopes of repatriating their funds, but got trapped, are already re-investing their money in local investment tools, an investigation by Business Post has revealed.

In March 2020, the Central Bank of Nigeria (CBN) practically stopped the sale of foreign exchange (forex) to authorised traders.

Since the lockdown in Lagos, Abuja and Ogun State, Dollar sales at the Investors and Exporters (I&E) window have reduced drastically.

The I&E segment of the forex platform was created by the apex bank about three years ago for the exchange of Naira to Dollar by FPIs and business corporations.

Before the movement cessation on March 30, the average daily trading value at the investors’ segment was within $400 million to $500 million, but since the lockdown, it has broadly dropped to $30 million to $40 million. This has largely eased the pressure on the domestic currency and there have been huge drop in demand for forex at the market as well as supply.

Business Post reports that on Friday, the total value of transactions at the I&E segment was $62.45 million, higher than the $25.43 million recorded on Thursday.

Nigeria has been battling with Dollar inflows due to fall in the prices of crude oil, which contributes over 80 percent to its foreign earnings, causing the nation’s external reserves, where the CBN takes forex to defend the Naira, to deplete.

Business Post observed that some FPIs, who sold their Naira investments last month, have been unable to repatriate their proceeds weeks after. This has forced some of them to reconsider putting the funds back into the capital market.

In the past two to three weeks, the Nigerian equity market has suddenly experienced surge in the trading volume and value. It has also regained its strength despite the threats posed by the coronavirus disease, which has plunged the global economy into a recession, according to the International Monetary Fund (IMF).

Last week, the stock market appreciated by 7.19 percent week-on-week. This was after it moved up by 1.37 percent the previous week. This week, the market receded by 1.41 percent as a result of profit taking, though there was a 0.57 percent growth recorded yesterday (Friday).

Investigations by Business Post showed that non-resident investors, who could not get their funds out of the country, chose to turnover the money and wait until the restrictions are lifted and Dollar supply to the I&E is resumed by the CBN.

At the treasury bills market, in the last two weeks, there have been upsurge in transactions at the Open Market Operations (OMO).

Last year, the CBN restricted local retail and institutional investors from buying its OMO bills and only allowed FPIs to invest in the liquidity management tool.

Since the lockdown commenced late last month, the OMO auctions had been snubbed by offshore investors, but when they could not repatriate their funds, they began to look the way of the exercise about two weeks ago.

At the last exercise held on Thursday, OMO bills worth N100 billion were auctioned across 89-day, 180-day and 341-day tenor, but the bank received subscriptions worth N323.8 billion from investors.

According to the analysis, N10 billion worth of the short-dated bill were offered for sale, another N10 billion worth of 180-day instrument were auctioned, while N80 billion worth of 341-day maturity were offered.

But when the bids were analysed, investors staked N64.10 billion on the short-dated bill, N33.50 billion was staked on the mid-dated bill, while N226.16 billion was staked on the long-dated bill.

A day earlier, the Debt Management Office (DMO) auctioned local bonds worth N60 billion to investors, but when the bids were analysed, the papers were oversubscribed by 459 percent, with the debt office getting subscriptions valued at N275.67 billion.

Next Monday, President Muhammadu Buhari has a huge task to carry out. Nigerians would be expecting to hear his verdict on the present lockdown, which is currently in its fourth week.

Nigeria has continued to witness rise in the cases of COVID-19. As at Friday, a total of 1,095 cases of the virus have been confirmed in the country.

The Nigeria Centre for Disease Control (NCDC) last night announced 114 new cases, with 80 in Lagos, 21 in Gombe State, 5 in Abuja, 2 each in Zamfara and Edo States, and one each in Ogun, Oyo, Kaduna and Sokoto States.

Lagos has the highest number of cases, 657 cases, followed by Abuja with 138 cases.

If the lockdown is extended by another two weeks or one, the capital market may continue to benefit from it because it means more liquidity at the market, which is enough to keep the positive momentum at the stock market on.

However, most Nigerians, who are daily income earners will continue to groan as some of them claimed they have not received palliatives from government to encourage them to stay home any longer.