Investment experts at Bancorp Securities Limited, a leading investment research and consulting services provider in Nigeria, have projected that the positive momentum that characterized trading sessions in the Nigerian Exchange will be sustained this week in view of the prevailing micro and macroeconomic indices of the nation’s economy.
The experts noted that in a recent report as of Q1 2024, Nigeria’s capital importation figures improved to $3.38 billion, representing a 198.06% year-on-year increase and a 210.16% premium when compared to the value of capital imported in Q4 2023.
The analysts, in the firm’s ‘Weekly Stock Recommendation July 08-12, 2024’ circulated to our correspondent stated that their considerations surrounding the economic implications of the improved capital importation included but were not limited to positive externalities such as Increased capital inflows bolster Nigeria’s foreign exchange reserves, providing a shield against external shocks and stabilizing the Naira. This investment targets critical sectors like banking, manufacturing, and oil and gas, fostering growth, job creation, and technological advancement. Infrastructure projects also benefit, boosting overall productivity and competitiveness through enhanced infrastructure.
In addition, they linked the surged to higher foreign investment levels spur economic growth by enhancing productive capacity and efficiency, resulting in elevated GDP growth rates and improved economic metrics.
According to the investment researchers, these inflows reflect investor confidence in Nigeria, attracting further investments and bolstering the country’s global economic reputation. Moreover, foreign investments introduce advanced technologies and management expertise, elevating local businesses’ efficiency and competitive edge.
However, they identified the downside considerations as dependence on foreign capital could expose Nigeria to vulnerability during global crises or shifts in investor sentiment, leading to potential capital flight.
Similarly, the experts cautioned that sudden surges in capital inflows can also cause exchange rate volatility and inflationary pressures if not managed effectively even as foreign capital influxes may result in higher local interest rates, impacting borrowing costs for domestic businesses and potentially crowding out local investments.
Additionally, the analysts noted that repatriation of profits by foreign investors can lead to significant capital outflows, affecting the country’s balance of payments and potentially causing sectoral imbalances in the economy.
They disclosed that the firm’s sentiment indicator, the short-term trading index (TRIN), returned 0.40 points after a decline in the NGXASI, suggesting improving momentum on the bourse and a potential upward trajectory in the coming weeks.
On their projection for the capital market this week, the experts stated: “We anticipate improved performance for growth stocks amidst increasing participation in the FUGAZ category capital raising exercise, which is majorly scheduled for the coming weeks.
“Notwithstanding, measures to enhance liquidity in the foreign exchange market including expected policy rate hikes, are likely to have a balancing impact on the bourse, although minimal.
“Consumer goods and industrial goods stocks may experience reduced momentum as financial services and Services stocks take centre stage in the coming weeks”, they added.
