Foreign investors saw their stake in Nigerian equities shrink by 8.34 percent in August 2023, citing ongoing challenges related to repatriating dividends and heightened political tension following the February 25th presidential election.
Data from the Nigerian Exchange Limited (NGX) Domestic and Foreign Portfolio Participation in Equity Trading for August revealed that foreign portfolio investors (FPI) scaled down their participation to N37.16 billion, down from N40.54 billion in July 2023, marking a 14.15 percent decrease.
The initial optimism sparked by the inauguration of President Bola Tinubu and his market-friendly policies began to wane in July due to uncertainties surrounding economic policies.
FPI investments had surged by 338.7 percent, reaching N37.16 billion in May, up from N8.47 billion in April, increasing their participation from a mere 4.43 percent in April to 11.15 percent. This figure then rose by 23.1 percent to N45.74 billion in June. However, it declined by 11.4 percent to N40.54 billion in July before further decreasing to its current level.
On a year-on-year basis, FPI holdings dropped by 26.1 percent to N222.78 billion from N301.37 billion the previous year.
The data also highlighted a growing disparity between FPI inflow and outflow. In August, the net inflow stood at N13.79 billion, while outflow amounted to N23.37 billion.
David Adonri, Vice Chairman of Highcap Securities, pointed out, “The initial market-oriented reforms initiated when this administration assumed office encouraged foreign investors, but their enthusiasm diminished due to difficulties in retrieving their trapped dividends and profits. The worsening economic situation, marked by a persistent shortage of foreign exchange, rising insecurity, and political tensions, eroded foreign investors’ confidence.”
Chinazom Izuora, Senior Associate at Parthian Partners, added, “The declining FPI participation in the equity market should not raise alarms. There are various factors influencing foreign investor involvement in the Nigerian equity market. Notably, there is a correlation between the equity and fixed income markets. When interest rates in the fixed income market rise, investors tend to shift from the equity market to the fixed income market. Given the rising interest rates in developed economies and expectations of further rate hikes later this year, it’s understandable that higher domestic interest rates offer less incentive for foreign investors to invest internationally.”
