Foreign portfolio investments (FPIs) in Nigeria have dropped to their lowest level in more than eight years as foreign exchange (forex) constraints and macroeconomic challenges continued to dampen foreign investors’ appetite for Nigerian assets.
Latest report on FPIs and transactional pattern at the stock market obtained at the weekend showed that total FPI transactions dropped to a low of N15.53 billion by the end of July 31, 2021, the lowest performance since 2013 when the market started tracking FPIs.
The report showed that foreign investors, who used to be dominant players or major players in the investment market with percentage contributions of between 60 and 40 per cent, have withdrawn to all-time low of 17.3 per cent.
The apathy from foreign investors impacted the overall performance at the stock market, with total monthly transactions at the Nigerian Exchange (NGX) dropping to N89.77 billion in July 2021, its lowest since April 2017.
A breakdown of the transaction pattern of the FPIs showed that Nigeria’s FPIs remained in deficit, implying more outflows than inflows, both on a month-on-month basis and aggregate seven-month period for the year. Total inflows for the seven-month period ended July 2021 stood at N112.74 billion as against outflows of N124.75 billion. In July 2021, outflows of N8.03 billion outstripped inflows of N7.50 billion.
Market analysts attributed the decline in foreign investments to lack of clarity and impulsive foreign exchange management by the Central Bank of Nigeria (CBN), which had built up pressure and saw steep depreciation in national currency.
The naira depreciated across the official and parallel markets at the weekend despite modest 0.22 per cent increase in Nigeria’s foreign exchange. At the official Investors and Exporters (I & E) Window, the naira depreciated by 0.08 per cent to N412.00 per dollar.
With more pressure at the parallel market, naira depreciated by 0.97 per cent to N524.00 per dollar. Nigeria’s forex reserves had improved by 0.22 per cent to $33.57 billion as at close of market last Thursday.
The FPI report, coordinated by the NGX, the new trading platform after the demutualisation of the defunct Nigerian Stock Exchange (NSE), included transactions from nearly all custodians and capital market operators and it is widely regarded as a credible measure of FPI trend.
The report uses two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market and the economy.
While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.
FPIs had declined by 22.64 per cent to a four-year low to close 2020 at N729.20 billion as against N942.55 billion recorded in 2019. The decline FPIs in 2020 had counteracted the general increase in momentum of activities at the Nigerian stock market, which had seen 12.45 per cent increase in total turnover value.
Total FPIs had increased from N1.208 trillion in 2017 to N1.219 trillion in 2018, before dropping by 22.72 per cent to N942.55 billion in 2019.
Reports had also shown continuing negative trend in the mix of inflows and outflows, with more outflows than inflows, implying that foreign investors were selling more of their investments than buying more investments. This is known as FPI deficit.
Nigeria recorded FPI deficit of N234.66 billion in 2020, about 125 per cent increase on N104.3 billion recorded in 2019. This implied that foreign investors divested more than two kobo for every kobo invested in 2020. FPI deficit had stood at N66.3 billion in 2018.
Foreign portfolio inflows stood at N247.27 billion as against outflows of N481.93 billion in 2020. Inflows and outflows had stood at N419.13 billion and N523.42 billion in 2019.
Reports had also shown that the quantum of transactions by foreign investors relative to total transactions at the Nigerian market decreased from about 49 per cent of total activities in 2019 to about 34 per cent in 2020.
Nigeria’s FPI had slipped into negative with a net deficit of N66.2 billion in 2018 after a world-leading stock market rally left the country with a surplus of N336.94 billion in 2017.
Total foreign inflows in 2018 stood at N576.45 billion compared with outflows of N642.65 billion. Foreign inflows had in 2017 outpaced outflows at N772.25 billion and N435.31 billion.
– The Nation