September 7, 2022/United Capital Research
Last week, the National Bureau of Statistics (NBS) released the capital importation data for Q2-2022. According to the data, capital importation declined by 2.4% q/q to print at $1.5bn in Q2-2022, from $1.6bn in Q1-2022, albeit 75.3% y/y higher than its $875.6mn print in Q2-2021. We attribute the increase y/y to the low base in 2021 following severe sustained FX illiquidity concerns.
Taking a further dive into the numbers showed that the Foreign Portfolio Investment (FPI) contributed the bulk of the total capital imported, accounting for 49.3% (albeit lower than 60.9% in Q1-2022). FPI printed at $757.3mn, 20.9% q/q less than $957.6mn in Q1-2022 and 37.4% y/y higher than its print in Q2-2021. Notably, the decline can be attributed to decreased inflows to money market instruments (down 31.4% q/q ) and equities (down 60.0% q/q). In comparison, Foreign Direct Investment (FDI) remains underwhelming (contributing only 9.6% to the total) as it declined by 5.0% q/q to $147.2mn from $155.0mn in Q1-2022. However, it expanded by 88.7% y/y in Q1-2021; we note that foreign exchange liquidity concerns, insecurity, and a chronic lack of enabling infrastructures, such as power and transportation constraints, continue to discourage long-term commitments to the country through FDI. On the other hand, we observed improvements in the other investments category as it increased by 37.0% q/q to 630.9mn in Q2-2022 (accounting for 41.1% of the total), as the loan sub-component climbed by 384bps.
Looking forward, we expect FDIs to remain underwhelming in the absence of any bold infrastructural reforms. For FPIs, despite our expectation of a more hawkish monetary stance leading to increase fixed income rates, we believe capital importation will remain in a lull, given the expectation of higher interest hikes in developed markets. We expect downside risks around foreign exchange pressures and uncertainties regarding the upcoming election year to deter capital importation in the medium to long term.
