Nigeria's stock market seen closing the year higher, analysts express concerns

The Nigeria's stock market is growing in leap and bound, thanks to the increasing flows of foreign portfolio investment (FPI) into the country, aided by the introduction of the investor and exporter foreign exchange window by the Central Bank of Nigeria (CBN) early in the year.
The stock market has grown 39 percent year-to-date as FPIs are taking advantage of improved fundamentals in the capital market and the attractive yields on local fixed assets to invest heavily in the domestic market.
Data from the National Bureau of Statistics (NBS) this week showed that the total value of capital imported into Nigeria more than doubled in the third quarter to $4.15 billion after the economy emerged from a recession.
The NBS report also indicated that investment in the stock market recorded the largest amount of capital imported in the third quarter of the year and closely followed by servicing and production sectors.
Already, capital market operators are optimistic that barring any challenges in the economy and other factors, the market is expected to close the year higher and emerged the best performing among its peers globally.
The nation's stock market has closed on the negative territory last year due to the decline in economic growth and the shortage of foreign exchange to power the productive sector.
"Investors confidence has been restored in the economy with the improvement in the macroeconomic outlook and improved in dollar liquidity in the foreign exchange market," one operator told GFD.
Nigeria has faced severed currency crisis in the wake of global oil price collapse, pushing the Africa's top economy down the slope of recession.
However, Nigeria exited recession in the second quarter of the year with a revised 0.7 percent increase in the Gross Domestic Product (GDP) and followed with 1.4 percent growth in the third quarter.
Although Nigeria economy is still largely driven by the recovery in the global oil price, the sustained tight monetary stance of the CBN has helped to attract more dollar inflow to the country as investors looking for better returns lapped up domestic fixed assets.
Analysts at United Capital Plc have expressed concerns over the dominant role played by the huge capital flow from foreign portfolio investors in the rapid growth of the stock market considering its negative long-term implications on the economy.
"This capital importation mix, which largely favours FPIs, is not sustainable for a mono-economy like Nigeria," the investment bank analysts said in a note to clients on Wednesday.
The analysts said while Foreign Direct Investors (FDIs) targets long-term investments, FPIs track financial assets (stocks, government bills, and bonds) mostly for short-term return. "Hence, portfolio investors are fair-weather friends who would not hesitate to exit at the slightest sign of trouble"