Foreign Portfolio Investments Drop By 40.4% In Q1, 2021
Foreign portfolio investments (FPIs) in Nigeria dropped by 40.35 per cent to N150.23 billion in the first quarter of the year as against N251.87 billion recorded in comparable quarter of last year.
Nigeria’s latest FPI report obtained at the weekend showed that foreign portfolio transactions in Nigerian markets have shown no appreciable improvement, after dropping to a four-year low last year. There were decreases in inflows as well as momentum of activities while outflows continued to outweighed inflows. However, the latest report for the quarter ended March 31, 2021 showed appreciable restrain in the quantum of outflows, which had partly driven the overall performance in first quarter 2020.
FPIs accounted for some 22.2 per cent of total transactions in the market in the first quarter, nearly half of 40.2 per cent recorded in first quarter 2020. Total outflows for the three-month period ended March 31, 2021 stood at N90.12 billion, about 50 per cent above total inflows of N60.11 billion. Total inflows and outflows had stood at N65.27 billion and N186.6 billion respectively in first quarter 2020.
The FPI report, coordinated by the Nigerian Exchange (NGX) Limited, the new trading platform after the demutualisation of the defunct Nigerian Stock Exchange (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 and the economy.
While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.
The Nigerian equities market had witnessed increased transactions in the first quarter with total turnover closing at N676.53 billion in first quarter 2021 as against N626.87 billion in first quarter 2020. The improvement was however driven by domestic investors, who accounted for 77.8 per cent of turnover in first quarter 2021 as against 50.8 per cent in first quarter 2020.
FPIs had declined by 22.64 per cent to a four-year low to close 2020 at N729.20 billion as against N942.55 billion recorded in 2019. The decline FPIs in 2020 counteracted the general increase in momentum of activities at the Nigerian stock market, which saw 12.45 per cent increase in total turnover value.
FPI reports have continued to show wider gap between foreign portfolio inflows and outflows, implying that foreign investors divested more than two kobo for every kobo invested in 2020, the worst deficit in recent years.
Total FPIs had increased from N1.208 trillion in 2017 to N1.219 trillion in 2018, before dropping by 22.72 per cent to N942.55 billion in 2019.
The report also showed continuing negative trend in the mix of inflows and outflows, with more outflows than inflows, implying that foreign investors were selling more of their investments than buying more investments. This is known as FPI deficit.
Nigeria recorded FPI deficit of N234.66 billion in 2020, about 125 per cent increase on N104.3 billion recorded in 2019. This implied that foreign investors divested more than two kobo for every kobo invested in 2020. FPI deficit had stood at N66.3 billion in 2018.
The report also showed that the quantum of transactions by foreign investors relative to total transactions at the market decreased from about 49 per cent of total activities in 2019 to about 34 per cent in 2020.
Foreign portfolio inflows stood at N247.27 billion as against outflows of N481.93 billion in 2020. Inflows and outflows had stood at N419.13 billion and N523.42 billion in 2019.
Investment experts had attributed the continuing decline in FPIs to Nigeria’s heightened macroeconomic risks amid escalating security challenges and policy uncertainties.
Chief Operating Officer, GTI Capital Group, Mr Kehinde Hassan, said investors were wary of assets because of concerns over fiscal and monetary policies.
According to him, the uncertainty around the willingness of the policy makers to unify the multiple foreign exchange (forex) windows is a major disincentive for the participation of foreign portfolio investors in Nigeria market.
He noted the reluctance of World Bank to release $1.5 billion loan to Nigeria as a telltale of international concerns over the exchange rate management system.
“The high rate of inflation and unemployment occasioned partly by the increasing rate of insecurity has also cast a doubt on the reliability of the Nigerian market,” Hassan said.
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 respectively.