Foreign investors’ confidence in the economy is rising. The feat is attributed to the $14.1 billion combined foreign exchange (forex) deals from the Investors’ & Exporters’ FX Window – I&E FX Window- and the Central Bank of Nigeria’s (CBN’s) weekly dollar interventions.
The I&E FX Window has since April attracted $7.6 billion foreign investors’ cash into the economy. The CBN has injected nearly $6.5 billion into the economy within the period to settle forex obligations mainly at the retail end of the market.
Last week, the CBN, in its drive to sustain the improved dollar liquidity, injected $100 million into the Secondary Market Intervention Sales (SMIS) for spot and short tenored forwards not exceeding 60 days.
The forex rates across all segments traded within a tight band. At the official market, the naira opened at N305.70/$1 and closed at N305.80/$1 due to daily interventions by the CBN. Similarly, the domestic currency traded flat at the parallel market, closing at N370/$1 all through the week.
However, at the Nigeria Autonomous Foreign Exchange Market (NAFEX) segment, rate appreciated on all trading days, opening at N360.66/$1 and closing at N359.25/$1, which represent a 0.4 per cent appreciation week-on-week.
Analysts expect rates to hover at current levels this week as the CBN continues its drive to deepen liquidity via Wholesale and Retail markets interventions in various segments.
The I&E FX window, also called willing-buyer, willing-seller window, allows foreign investors to find buyers for their dollars at a mutually-agreed price. The CBN controls about 15 per cent of all the transactions carried out in the window.
Both the I&E FX Window and CBN’s intervention’s cash, the National Bureau of Statistics (NBS) quarterly capital importation report for the second quarter said, led to improved investor confidence in the economy as well as better macroeconomic condition.
It said the economy has witnessed improvement in capital inflows, as total capital inflows surged 97.3 per cent quarter-on-quarter to $1.8 billion from $0.9 billion in the prior quarter and improved 72 per cent year-on-year from $1 billion in the second quarter of last year.
Foreign Portfolio Investment (FPI) accounted for the largest proportion (43 per cent, $0.8 billion) in the second quarter , followed by Other Investments (41.7 per cent, $0.7 billion) and Foreign Direct Investment (15.3 per cent, $0.3 billion).
By sectoral contribution, inflows classified as Shares (52 per cent, $0.9 billion), Oil & Gas (10.6 per cent, $0.2 billion) and Telecommunication (9.7 per cent, $0.1 billion) attracted the bulk of capital inflows.
Afrinvest West Africa Limited Managing Director Ike Chioke is not surprised by the jump in foreign inflows, given the recent development in the FX market, particularly the launch of the I &E FX window in April.
“The largest volume of foreign inflows was recorded in May, underlining the positive impact of FX market transparency and flexibility on investor confidence. The knock-on effects of strong portfolio flows are already evident in performance of the domestic equities market which has historically been driven by FPIs,” he said.
He explained that investors took advantage of the erstwhile attractive valuation of the market, driving the benchmark index year-to-date return to 36.4 per cent as at August 25, from a negative position of -6.2 per cent in the first week of April.
He said the impact of the increased foreign inflows was also evident in real sector performance, as Manufacturing Purchasing Managers’ Index (PMI) readings for all the months in the second quarter of this year showed expansion in the sector.
Chioke said that despite the broad-based nature of rekindled confidence in the economy, the recovery is still fragile. Sustaining such the recovery in the short term would require the I & E FX window remaining flexible. He said any moves to distort the current operations/flexibility of the window could lead to a repatriation of funds.
The Afrinvest chief also confirmed in an emailed report that since the launch of the I & E FX Window in April, the turnover of transactions in the window has exceeded $7.6 billion adding that its key attraction remains that rates are market determined.
He said the improved FX liquidity is broadly driven by spate of FX intervention by the CBN – which has been bolstered by relatively stable oil prices and improved production volumes. Thus, we expect investors to continue to watch the two variables in taking investment decisions.
On the equities, as the earnings season draws to a close, performance of the benchmark index was mixed last week as the All Share Index (ASI) rose on three of five trading sessions.
Also, the last of Tier-1 lenders yet to release first half 2017 results submitted audited financials with better than expected performance reported across earnings metrics.
Nonetheless the impressive results from the Tier-1 banks, the All Share Index ended the week in the red, down 0.7 per cent week-on-week while year-to-date gain moderated to 36.4 per cent. Also, market capitalisation fell by N94.5 billion to settle at N12.6 trillion.
