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Foreign investors now resort to short term investment
With the growing incidence of insecurity in the domestic economy, there are indications that foreign investors no longer engage in long time investment in the capital market.
According to findings by the Nigerian Tribune on Friday, the current state of the economy occasioned by the security challenges is generating confidence crisis among foreign investors who now undertake short term investment in the local burse.
It will be recalled that foreign investors con-stitutes about 80 per cent of investors in the nation’s capital market and that is why they appear to be dictating the direction in the Nigeria stock market for now.
A report recently showed that “anytime foreign investors start buying stocks, the bulls will take over the market, and when they stop buying to take their profit, the bears take over again, hence one of the reasons for the back and forth movements that is being observed in the market so far.”
The Managing Director, Crane Securities Mr Mike Eze, said the present state of the market showed that “foreigners are not exiting per say rather what is happening is that they are taking away the profits which they have made both in the equities market as well as in the bonds market.”
Eze noted that the issue of foreigners coming into the market and exiting at will had always been a big issue since the 2008 crash of the Nigerian capital market.
“Under a normal market situation, there has to be a level playing field provided by proper and distinct regulation where participants are at liberty to enter and exit at will. So, the fact that foreign investors are leaving the equity and bond market should not really be an issue because a properly regulated market like ours should make provision for free entry and free exit points depending on the discretion of the investor. How the exit impacts the market is another issue altogether.
On what can be done to tame the ugly tide, Eze said “it is high time the various processes that have been put in place both by the regulators and the other decision makers in the capital market are implemented.”
He noted that the Federal Government should bring an inter-vention fund to the capital market, adding that “the bailout package was long overdue and it is one of the reasons why the market and the economy is still comatose.”
Chief Executive Officer First Bank of Nigeria Plc, Mr Bisi Onasanya, at a forum recently said a fundamental part of the current problem with the capital market was its shallowness and lack of breadth.
Onasanya noted that currently, less than 10 per cent of listed equities were actively traded, while the NSE offers only basic products.
“However, on account of the economy’s radi-cally changing financing needs, including the recourse to the public private partnership (PPP) arrangement as a solution to the nation’s infrastructure dearth, opportunities should now abound for a broadening of the exchange’s product offerings to include key derivative categories, expansion of listed mutual funds, index funds etc,” he said.Share