Nigeria’s Foreign Portfolio Deficits Widen By 356% In Q1
Nearly three-quarters of foreign portfolio transactions at the stock market in the first quarter were on the sell side as massive foreign portfolio outflows widened Nigeria’s foreign portfolio investments (FPIs) deficits by 356 per cent to N121.33 billion in the first quarter of the year.
Nigeria’s FPIs deficits – the difference between inflows and outflows within a specified period – worsened from N26.61 billion in first quarter of last year to N121.33 billion in first quarter 2020, according to the latest FPIs report provided by the Nigerian Stock Exchange (NSE).
The deficits of N121.33 billion in first quarter of 2020 represented 16.4 per cent increase on N104.29 billion recorded in the whole of 2019.
The report indicated that 74.1 per cent of total FPI transactions were on the sell side in first quarter of 2020 as against 56 per cent outflows in first quarter 2019 while the proportion of inflows to total transactions reduced from 44 per cent in first quarter 2019 to 25.9 per cent in first quarter 2020.
The report showed that total FPI outflows rose to N186.6 billion as against inflows of N65.27 billion in first quarter 2020 compared with total outflows of N124.24 billion and inflows of N97.63 billion in first quarter 2019. Total FPI transactions thus increased from N221.87 billion in first quarter 2019 to N251.87 billion in first quarter 2020.
The FPI report, coordinated by the NSE, included transactions from nearly all custodians and capital market operators and it is widely regarded as a credible measure of FPI trend. The report uses two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy.
The Nation’s review indicated that the FPI deficit was worsened by the spike in outflows in March 2020, which saw the highest monthly outflows in the past 22 months. Market analysts attributed the steep loss in market value at the stock market in March to the massive divestments by foreign investors. Investors had lost about N2.56 trillion or an average of 18.75 per cent in March 2020, the first month after the country recorded its first confirmed case of Coronavirus. Nigeria recorded its first confirmed Covid-19 case on February 27, 2020. With this, investors recorded net loss of about N2.68 trillion in the first quarter of 2020.
Total transactions at the Nigerian equities market increased from N420.26 billion in first quarter 2019 to N626.87 billion in first quarter 2020, driven by increased transactions by both foreign and domestic investors. Total transactions by domestic investors increased from N198.39 billion in first quarter 2019 to N374.98 billion in first quarter 2020 while total transactions by FPIs rose from N221.87 billion in first quarter 2019 to N251.87 billion in first quarter 2020.
Further analysis showed that foreign portfolio deficits widened from N22.69 billion in January 2020 to N33.4 billion in February 2020, representing a two-month deficit of N56.09 billion compared with deficit of N22.31 billion recorded in the first two months of 2019.
The proportion of outflows to inflows, which stood at 66 per cent to 34 per cent in January 2020 worsened to 73 per cent to 27 per cent in February 2020. These implied a two-month ratio of 70:30 compared with ratio of 57:43 recorded in comparable period of 2019.
Foreign portfolio outflows totalled N52.37 billion as against inflows of N18.97 billion in February 2020. Total outflows and inflows had stood at N46.50 billion and N23.81 billion in January 2020. Total foreign transactions had increased marginally by 1.46 per cent from N70.31 billion in January 2020 to N71.34 billion in February 2020. On a two-month basis, these indicated decline in total foreign transactions from N165.79 billion in the first two months of 2019 to N1141.65 billion in the first two months of this year.
Foreign portfolio outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE.
The latest report further heightened concerns about the FPI outlook for the Nigerian market, after the country posted foreign portfolio deficit of N104.29 billion in 2019.
A full-year transactional report on FPI had indicated that foreign portfolio investors traded less on Nigerian equities and were more on the sell side than the buy side in 2019. Total FPI inflows in 2019 stood at N419.13 billion as against outflows of N523.42 billion, representing a net deficit of N104.3 billion. Nigeria’s FPI had slipped into negative with a net deficit of N66.2 billion in 2018 after a world-leading stock market rally left the country with a surplus of N336.94 billion in 2017. Total foreign inflows in 2018 stood at N576.45 billion compared with outflows of N642.65 billion. Foreign inflows had in 2017 outpaced outflows at N772.25 billion and N435.31 billion.
The 12-month report for the year ended December 31, 2019 showed that total FPI transactions declined by N276.45 billion from N1.22 trillion in 2018 to N942.55 billion in 2019. Both sell side and buy side declined but the sell momentum was stronger. Total inflow dropped by N157.32 billion from N576.45 billion in 2018 to N419.13 billion in 2019 while total outflow declined by N119.23 billion from N642.65 billion in 2018 to N523.42 billion in 2019. Total FPI transactions for the 12-month period ended December 31, 2018 stood at N1.219 trillion as against N1.208 trillion recorded in 2017.
