Foreign investors are pouring back into Nigerian stocks after a long hiatus caused by dollar shortages and capital controls. Inflows surged fivefold in the first quarter of 2024, reaching N93.37 billion compared to N18.12 billion the prior year. This marks the highest quarterly inflow since 2019.
CBN reforms are credited with attracting investors. “Nigeria’s transformation from uninvestable to investable is remarkable,” said an African investment manager. “Settling the FX backlog, a market-driven exchange rate, and credible monetary policy are proving irresistible.”
While naira devaluation contributed, it’s not the sole factor. Despite a 60% devaluation, inflows are up over 400%, indicating improved investor confidence.
Foreign Activity: Inflows and Outflows
The market also saw foreign outflows rise to N119.81 billion (over three times 2023 figures), resulting in a net foreign outflow of N26.44 billion. However, authorities view this as a settlement of previously trapped funds, not a decline in sentiment.
Local Investors Dominate
Local investors played a significant role in the market’s 39.84% Q1 growth, the world’s best. They traded N1.3 trillion in stocks compared to foreign investors’ N213 billion. This is more than double the local activity in Q1 2023.
Sectoral Performance
Industrial goods (Dangote Cement, BUA Cement, Lafarge Cement) led the rally with a 78% rise. Consumer goods (Nestle, Nigerian Breweries) followed with 43.66%, while banks gained 14.76%.
Banking Sector Pullback
However, recent data shows a 12.07% decline in the banking index since April 19th. This follows the CBN’s recapitalization announcement, which excludes retained earnings from banks’ share capital. Fearing share dilution through rights issues, investors have pulled back since the March 28th announcement.
Conclusion
Despite the recent pullback in banking stocks, the Nigerian stock market is experiencing a resurgence, fueled by CBN reforms, improved investor confidence, and strong local participation. The naira devaluation’s impact remains to be seen, but the overall outlook appears positive.
