Foreign investors’ stake in Nigerian equities fell Month-on-Month (MoM) by 8.34 percent in August, 2023, on the back of the continued difficulty to repatriate their dividends as well as the political tension in the aftermath of the February 25th presidential election.
The Nigerian Exchange Limited (NGX) Domestic and Foreign Portfolio Participation in Equity Trading for August, showed that foreign portfolio investors (FPI) participation declined to N37.16 billion in August from N40.54 billion in July 2023. This indicates a 14.15 percent participation level.
The initial frenzy that greeted the inauguration of President Bola Tinubu and the pronouncement of some market-friendly policies by the president had begun to tank in July as a result of unclear economic policies.
FPI investment had risen by 338.7 percent to N37.16 billion in May from N8.47 billion in April, thereby raising their participation to 11.15 percent from mere 4.43 percent in April. The figure rose again by 23.1 percent to N45.74 billion in June. It, however, fell by 11.4 percent to N40.54 billion in July before declining further to its current position.
On a Year-on-Year (YoY) basis, the FPI position fell by 26.1 percent to N222.78 billion from N301.37 billion a year ago.
The data also showed a widening gap between FPI inflow and outflow. While the net inflow stood at N13.79 billion in August, outflow closed at N23.37 billion.
Commenting, David Adonri, Vice Chairman, Highcap Securities, said: “The initial market-based reforms embarked upon when this administration took office, encouraged foreign investors but their enthusiasm waned due to their inability to secure release of their trapped dividends and profits.
“The worsening economic situation evidenced by continued scarcity of hard currency, escalating insecurity and political tension dampened foreign investors’ confidence.”
Speaking in the same vein, Chinazom Izuora, Senior Associate at Parthian Partners, who opined that the declining FPIs’ participation in the equity market is not a cause for alarm, said: “There are several considerations around foreign investor participation in the Nigerian equity market. It is noteworthy that there is a correlation between the equity and fixed income market.
“Generally, when rates in the fixed income market go up, investors move from the equity market to the fixed income market. Interest rates in developed economies have been on the rise with more rate hikes anticipated later this year, it’s intuitive that with higher domestic interest rates there is less incentive for foreign investors to invest internationally.”
On the outlook, Izuora said foreign participation will naturally return on expectation of competitive returns if the present administration rolls out good policies that would stimulate economic growth and translate into growth for the listed companies.
In his own view, David Adonri noted that the political risk is even higher now, saying that the negative impact of President Tinubu’s reforms on non-financial sectors of the economy are likely to frighten foreign investors. “Foreign investment inflow is not likely to improve in this third quarter of the year,” he said.
