Foreign Portfolio Investments Rose By 10% In H1, 2022

Foreign investors’ participation in the nation’s investment market saw a modest recovery in the first half with proportionate increase in inflows from global investors.

The latest report on foreign portfolio investments (FPIs) obtained at the weekend showed that total transactions by foreign portfolio investors during the first half of the year rose by 9.7 per cent to N243.48 billion compared with N221.96 billion recorded in the first half of last year.

The report indicated that foreign inflows rose from N105.24 billion in first half 2021 to N120.51 billion in first half 2022. Foreign outflows, however, also increased from N116.72 billion to N122.97 billion. Proportionate analysis, meanwhile, indicated faster growth in inflows than outflows, despite the fact that the base figures were almost within same range. While foreign inflows rose by 14.5 per cent, foreign outflows were slightly over a third with 5.36 per cent growth.

The FPI report, coordinated by the Nigerian Exchange (NGX), included transactions from custodians and capital market operators and it is 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 first half report represented a recovery for the market after a successive period of decline.

First quarter 2022 FPI report had shown decline in both the actual value and the proportionate participation of foreign investors in the stock market. Foreign investors’ net participation also remained negative with more outflows than inflows, although the gap narrowed.

Total transactions by FPIs during the first quarter ended March 31, 2022 stood at N128.91 billion, 14.2 per cent or N21.3 billion below N150.23 billion recorded in comparable period of 2021. The proportionate participation of FPIs in the stock market dropped by nearly four percentage points from 22.21 per cent in first quarter 2021 to 18.62 per cent in first quarter 2022.

A breakdown of the FPIs indicated country deficit, although the gap between inflows and outflows narrowed considerably. Total FPI inflows stood at N55.33 billion as against outflows of N73.58 billion in first quarter 2022. These compared with N60.11 billion and N90.12 billion recorded as inflows and outflows in first quarter 2021.

Meanwhile, trading at the stock market remained on the upswing. Total transactions during the first half of 2022 stood at N1.66 trillion compared with N1.03 trillion in first half 2021. The market turnover was driven by investors, sustaining a backward integration trend of recent years. Domestic investors accounted for N1.42 trillion in first half 2022 as against N812.5 billion in first half 2021.

First quarter 2022 report had shown similar trend with total transactions increasing from N676.53 billion in first quarter 2021 to N692.20 billion in first quarter 2022.

Total transactions by domestic investors had risen from N526.30 billion in first quarter 2021 to N563.29 billion in first quarter 2022. Individual retail investors accounted for N265.62 billion in first quarter 2022 as against N229.79 billion in first quarter 2021 while institutional domestic investors accounted for N215.19 billion in first quarter 2022 as against N296.51 billion in first quarter 2021.

FPIs in the stock market had dropped consecutively to lowest levels in recent years. FPIs had dropped by 40.4 per cent in 2021 to its lowest level in five 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.

The 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 at the stock market last year.

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 remains 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 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.

FPI reports have shown 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 reports had also shown 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.

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.

Most analysts have blamed Central Bank of Nigeria’s (CBN)’s management of the country’s foreign exchange (forex) for the decline in foreign investors’ appetite for Nigerian stock market. They said the opaque forex system amidst uncertainties and threats of devaluation did not provide the needed stability for foreign participation.