Foreign Investment in Nigerian Stocks Hits Lowest Level Since Reform-Driven Rally; Currency Concerns Loom Large
Foreign investment in Nigerian stocks has dropped to its lowest point since President Bola Tinubu’s reforms initiated a significant market rally, according to data from the Nigerian Exchange Limited (NGX). The data reveals a decline in the total value of stocks bought by foreign investors from N22.72 billion in June to N9.45 billion in July. In the same period, foreigners offloaded stocks worth N31.09 billion, compared to N23.02 billion in the preceding month.
The surge in foreign inflow into Nigerian stocks in May, reaching N27.51 billion, was propelled by the announcement of petrol subsidy removal by President Tinubu on May 29. This marked the market’s first net inflow of the year. However, the subsequent foreign exchange reform and naira devaluation in mid-June led to increased uncertainty in the foreign exchange market, potentially contributing to the July decline in foreign investment.
The uncertainty in the foreign exchange market and the possibility of profit-taking are seen as potential factors driving the foreign investment pullout in July. Foreign participation in the equities market, which had climbed to 11.51 percent in May, dropped to 5.77 percent in July, as per NGX data.
The latest data underscores foreign portfolio investors’ sentiments toward the Nigerian capital market and highlights the need for increased foreign exchange earnings to restore investor confidence. Efforts such as active operations in Open Market Operations (OMO) bills with competitive interest rates aim to attract foreign investors back into the market. However, there are concerns about a potential imbalance in interest rates between foreign and domestic investors, along with the potential impact on the Central Bank of Nigeria’s balance sheet.
Opinion:
The sharp decline in foreign investment in Nigerian stocks reflects the vulnerability of emerging markets to sudden shifts in global economic conditions. The data underscores the sensitivity of investors to currency fluctuations and policy changes. The foreign exchange reform and devaluation introduced a layer of uncertainty, pushing some investors to reconsider their exposure. While short-term measures like OMO operations may help restore some foreign investor confidence, achieving a sustained rebound will require a comprehensive approach, including maintaining transparent policies and addressing currency stability concerns.
Published by marketnewsng