Nigeria Records First Foreign Portfolio Surplus In Five Years
Nigeria’s foreign portfolio investments (FPIs) status has witnessed a major turnaround with yearly inflows outweighing outflows for the first time in five years.
Latest annual trading data on FPI showed that foreign investors bought more Nigerian stocks than they sold last year, reversing the negative trend that started in 2018.
FPI transactions ended 2022 with a surplus of N12.29 billion, as against a deficit of N24.74 billion recorded in 2021. Nigeria recorded FPI deficit of N234.66 billion in 2020, about 125 per cent increase on N104.3 billion recorded in 2019. The country had slipped into negative with FPI deficit of N66.3 billion in 2018.
The FPI report, coordinated by the Nigerian Exchange (NGX), 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 equities market and the economy. While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.
When inflows outweigh outflows, it simply means foreign investors are buying more quoted equities than they are selling and when outflows outpace inflows, it implies that foreign investors are selling more of their investments than buying more investments. Thus the position of FPI surplus or deficit.
FPI inflows closed 2022 at N195.76 billion as against outflows of N183.47 billion. FPI outflows had outweighed inflows at N229.62 billion and N204.88 billion respectively in 2021. However, total FPI transactions dropped from N434.5 billion in 2021 to N379.23 billion in 2022. The proportion of foreign transactions to total transactions declined from 22.88 per cent in 2021 to 16.32 per cent in 2022.
Total transactions at the Nigerian equities market had jumped from N1.899 trillion in 2021 to N2.324 trillion in 2022 as domestic investors defied political transition and spiraling inflation to accumulate stronger positions in quoted shares.
The 2022 FPI surplus was a major recovery for the market, although the momentum of foreign transactions remained on the decline. FPIs in Nigerian stock market had dropped consecutively to lowest levels in recent years. Active participation of foreign investors in Nigerian market declined by 11 percentage points from about 34 per cent of total market transactions in 2020 to about 23 per cent in 2021.
Cordros Securities attributed what it described as the “lackluster interest” of foreign investors in Nigerian equities to foreign exchange (forex) liquidity challenges.
According to analysts at Cordros Securities, foreign investors would likely remain on the sidelines due to election uncertainties, sustained foreix liquidity challenges, and tightening global financing conditions.
The 2021 full-year FPI report had also shown a significant deceleration in FPI transactions and it was the main reason for the 12.4 per cent decline in turnover of activities at the Nigerian stock market in 2021.
Total foreign transactions in Nigerian equities declined to N434.50 billion in 2021 as against N729.20 billion recorded in 2020. Consequently, the percentage participation of FPIs in total market transactions dropped from 33.63 per cent in 2020 to 22.88 per cent in 2021.
The report had however shown admirable improvement in the overall FPI deficit as the gap between inflows and outflows narrowed considerably in 2021 compared with 2020, although the country had continued with negative FPIs flow.
FPI inflows and outflows stood N204.88 billion and N229.62 billion in 2021, indicating a deficit of N24.74 billion. These compared with inflows and outflows of N247.27 billion and N481.93 billion respectively in 2020, and a deficit of N234.66 billion.
FPIs had also 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 in FPIs in 2020 counteracted the general increase in momentum of activities at the stock market, which saw 12.45 per cent increase in total turnover value.
FPI reports had shown wider gap between foreign portfolio inflows and outflows, implying that foreign investors had 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.
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 reports had also shown that the quantum of transactions by foreign investors relative to total transactions at the Nigerian 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.
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.