February 20. 2023/CSL Research

Based on data from the Nigerian Exchange, Foreign Portfolio Inflows into the Nigerian  equities market declined 3.03% m/m to N8.64bn in December 2022 from N8.91bn recorded in November 2022. On the other hand, Foreign Portfolio Outflows increased by 19.02% m/m to N6.57bn from N5.52bn recorded in November 2022. Hence, there was a net inflow of N2.07bn in the month of December. January to December, total inflows came to N195.76bn while outflows amounted to N183.47bn, implying a net inflow of N2.07bn.

However, inflows have declined steadily to N195.76bn in 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 10.81% (N15.21bn) while total domestic transactions made up 89.19% (N125.49bn) in the month of December 2022. January to December, Foreign Portfolio transactions constituted 16.32% (N379.23bn) while total domestic transactions constituted 83.68% (N1,945.04bn).

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/scarcity. Not only has the exchange rate been volatile, 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 62.69%. 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.

In terms of the hawkish monetary stance of the advanced economies, the US Fed in February 2023, retained its hawkish stance with a 25bps increase to 4.75% despite a steady decline in inflation from 9.1% in June to 6.4% in January 2023. Likewise, the Bank of England raised it monetary rate by 50bps to 4.0% in February 2023 despite a steady decline in inflation from 11.1% in October 2022 to 10.1% in January 2023. Hence, we expect Foreign Portfolio Inflows to remain low in H1 2023.

Click here to read full PDF copy of report