Foreign Investors Decline Holdings in Nigerian Stocks by 58%
Foreign portfolio investors (FPI) scaled down their investments in Nigerian’s stock market to N53.71 billion in the first quarter of 2023, Q1’23, following concerns around rising socio-political risks, increased naira volatility among others.
This represents a 58.3 percent Year-on-Year (YoY) decline compared to N128.91 billion they staked in the corresponding period in 2022.
The report by the Nigerian Exchange Limited (NGX) on Domestic and Foreign Portfolio Participation, DFPP, in equities showed a consistent decline in the value of FPI participation in the market from January to March this year.
Breakdown showed that total foreign portfolio investment had fallen Month-on-Month (MoM) by 26.9 percent to N19.62 billion in February, 2023 from N24.90 billion in January, before falling again to N9.19 billion at the end of March, indicating a 53.2 percent MoM decrease.
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Further analysis showed that Year-to-date (YtD) foreign investors accounted for mere 10.13 percent of total equities transactions.
Also, the total FPI outflow outpaced inflow within the three month period with N18.12 billion inflow recorded against N35.59 billion outflow.
Analysts at United Capital Plc noted that the consistent decline in FPI’s participation in equities is indicative of foreign investors’ lacklustre interest in Nigeria’s economy, while attributing the decline to insecurity concerns, rising socio-political risks, declining foreign reserves, rising debt sustainability risks, increased Naira volatility among other factors.
They said: “In the last five years, FPIs have declined by a Compound Annual Growth Rate (CAGR) of 66.7%. This validates foreign investors’ lackluster interest in the Nigerian economy. Some of the repellent factors include legacy insecurity concerns, rising socio-political risks, declining foreign reserves, rising debt sustainability risks, increased Naira volatility, and hawkish postures across central banks in emerging markets and advanced economies.’’
Taking a trend analysis of the FPIs’ participation in equities, the analysts observed that
“The overall allocation of FPIs to the Nigerian equities market has maintained a sustained decline since 2017. To put things in perspective, from 2017 to 2022, the percentage (%) of FPI allocated to buying/trading shares on the Nigerian Exchange was 43.6%, 20.0%, 11.6%, 14.7%, 6.1%, and 2.3%, decreasing by a CAGR of 56.5 percent since 2017.
“During this period, investors’ interest was mostly skewed in favour of money market instruments, evident in the percentage (%) FPI allocation to money market instruments, which printed at 43.8%, 71.8%, 82.2%, 80.8%, 77.2%, and 57.5% from 2017 to 2022, respectively. This essentially demonstrates foreign investors’ risk-off sentiment toward investing in the Nigerian financial markets within the last five years, amid the increasingly volatile macroeconomic environment.”
Looking ahead, they said that foreign participation would remain lacklustre (in the short term), as the prevailing inhibitions remain unabated.
