April 12, 2023/United Capital

Extracts from the recent publication from the National Bureau of Statistics (NBS) on Nigeria’s Capital Importation Statistics for FY-2022, revealed the sustained decline of foreign portfolio investments (FPIs) in FY-2022. According to the data, FPIs declined by a significant 72.6% y/y in FY-2022. In the last five (5) 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.

Zooming in, we 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 (5) years, amid the increasingly volatile macroeconomic environment.

Despite the declining participation of foreign investors in the local bourse and the increasingly challenging business environment, Nigerian listed corporates remained resilient in delivering solid corporate earnings performance. Given the relatively insignificant % foreign participation in the Nigerian exchange (16.3% in FY-2022), the bourse was able to record a positive performance of 20.0% (with overall earnings performance improving by 9.3%) in FY-2022, despite the string of hawkish postures by the MPC (+500bps MPR hike). Looking ahead, we expect foreign participation to remain lacklustre (in the short term), as the prevailing inhibitions (as outlined above) remain unabated. However, we remain confident that listed corporates will continue to outperform, irrespective of the magnitude of foreign participation in the Nigerian markets.

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