December 6, 2022/CSL Research
Amid the ongoing uncertainties in the global investment terrain, Foreign Portfolio Inflows in the Nigerian equities market rose 80.16% m/m to N18.16bn in October 2022 from N10.08bn recorded in September 2022. On the other hand, Foreign Portfolio Outflows grew slower by 8.34% m/m to N10.39bn from N9.59bn recorded in September 2022.
Hence, there was a net inflow of N7.77bn in the month of October. Year-to-date, total inflows come to N178.21bn while outflows amount to N171.38bn, implying a net inflow of N6.83bn. However, inflows have declined steadily to N178.21bn in October 2022 from N204.88bn in 2021, N247.27bn in 2020, N419.13bn in 2019, N576.45bn in 2018 and N772.25bn in 2017.
In terms of market share, total foreign portfolio transactions constituted 25.93% (N28.55bn) while total domestic transactions made up 74.07% (N81.54bn) in the month of October 2022. Year-to-date, Foreign Portfolio transactions constituted 16.81% (N349.59bn) while total domestic transactions constituted 83.19%(N1,729.60bn) as of October 2022.
We continue to link the low foreign portfolio inflows, to the heightened global investment risks – worse in emerging markets and developing economies, the hawkish monetary stance of the advanced economies and the Naira exchange rate volatility. Not only has the exchange rate been volatile, but the Central Bank has also not been liquid enough to timely meet foreign currency demands by foreign investors who need to repatriate their investment
proceeds.
We had earlier noted that an overhaul of the country’s FX policies will be required, however, in the immediate, we believe it is critical to close the existing premium between the various official foreign exchange windows and the parallel market which is about 75.28%. Beyond the CBN’s monetary policies and interventions, fiscal policies and interventions aimed at boosting crude oil & gas earnings is a critical factor in ensuring exchange rate stability in the near term.
That said, despite a steady decline in inflation from 9.1% in June to 7.7% in October 2022, the US is still widely forecasted to remain hawkish (forecast +50bps) in the next Federal Open Market Committee meeting (December 13 – 14, 2022). We also anticipate +50bps hike from the Bank of England on 15 December 2022. Hence, we expect Foreign Portfolio Inflows to remain low in December.
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