November 6, 2023/CSL Research
According to the Nigerian Exchange Limited (NGX) report on domestic and foreign portfolio participation in equities for September 2023, Foreign Portfolio Investments (FPI) in the stock market declined further due to lingering difficulties around the ability of foreign investors to repatriate dividends and profits caused by a significant decline in FX supply. Total Participation by foreign investors (both inflow and outflow) was down 24.4% y/y from N321.04bn to N258.02. Details of the report showed that foreign investments represented 9.51% of total equity transactions of N2.71trn during the period compared with 16.30% a year ago.
FPI inflow declined by 46.9% y/y to N108.93bn from January to September 2023 from N160.05bn (Jan – Sept 2022) while outflow declined 7.98% to N149.09bn, from N160.99bn in the corresponding period of 2022. On a m/m basis, the total foreign investments fell to N35.24bn in September, a 5.2% reduction compared to N37.16bn in August. Participation by foreign investors in the equities market also declined to 11.91% in September compared with 14.15% participation level in August.
The initial frenzy which heralded the inauguration of President Bola Tinubu in May 2023 and the pronouncement of some market-friendly policies by the new president began to wane in July as a result of a lack of clear economic plans on how to increase the supply of FX.
Meanwhile, interest rates in advanced economies have been on the rise with more rate hikes anticipated later this year. With higher domestic interest rates for foreign investors, there is less incentive for them to invest in risky developing markets. Domestic investors, whose transactions made up 88.09% (Institutional & retail) of total transactions within the review period continue to sustain the local bourse. We do not expect to see increased foreign investor participation in the near term until there are clear signals that sustainable solutions to the FX crisis have been found.
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