Sharp Decline in Portfolio Capital Imports

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Thursday, September 10, 2020 / 11:43 AM / by FBNQuest Research / Header Image Credit: VoxEU

 

The NBS recently released its latest report on Nigerian Capital Importation, which covers Q2 2020. The data were obtained from the CBN and compiled using information on banking transactions from all registered financial institutions in Nigeria. The total value of capital imported in Q2 was estimated at US$1.3bn, representing decreases of -78% q/q and -79% y/y. The data are gross, and not adjusted for capital exports.

                                                                                              

The category referred to as other investment inflows accounted for the largest share (59%) of total capital importation; its core driver were loans while other claims represented just 5% of the inflows from this category.

 

As for portfolio investment inflows, there was a q/q decline of -91% in Q2. Money market instruments accounted for 86% of total portfolio investment but contracted by -90% q/q. The sharp decline in inflows can be attributed to reversal of capital flows following the COVID 19 pandemic, and a weaker macroeconomic outlook. Meanwhile, there were no contributions from bonds to portfolio investments in Q2.

 

Demand for equities was low in Q2. Equities accounted for 14% (US$53m) of total portfolio investments, representing decreases of -92% q/q and -89% y/y. Although the market has clawed back some of the losses since April, stocks are still cheap based on our fair value estimates. Equities may benefit from the large pool of liquidity from maturing fixed income instruments this year.

 

Capital importation by type (US$ m)

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Sources: National Bureau of Statistics (NBS) ; FBNQuest Capital Research

 

Foreign direct investment (FDI) inflows declined by -31% q/q to US$149m in Q2. They represented just 11% of total capital importation, compared with 4% the previous quarter. Following the economic downturn triggered by the ongoing pandemic, there has been a strong downward trend in greenfield investment projects. We do not expect a significant improvement in FDI inflows in the short to medium term.

 

Based on trading activities to date this quarter, we expect the Q3 report when published to see a slight pickup in portfolio investments inflows compared with Q2 levels.

 

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