Data from the Nigerian Exchange Limited (NGX) revealed a notable 8.34% month-on-month drop in foreign investors’ holdings of Nigerian equities in August 2023.
This decline can be attributed to the ongoing challenges faced by foreign investors in repatriating their dividends and the political tensions that emerged following the presidential election on February 25th.
Equity participation drops
Foreign portfolio investors (FPI) participated with a total investment of N37.16 billion in August, down from N40.54 billion in July 2023. This represented a 14.15% decrease in their participation levels.
Previously, there was a surge in FPI investment, with a significant increase of 338.7% to N37.16 billion in May, up from N8.47 billion in April.
However, this enthusiasm began to wane due to a lack of clear economic policies.
The data further revealed that the FPI position had increased by 23.1% to N45.74 billion in June but then declined by 11.4% to N40.54 billion in July before reaching the current position.
In a year-on-year comparison, foreign investors’ positions were down by 26.1%, totaling N222.78 billion compared to N301.37 billion from a year ago.
A noticeable trend was the growing disparity between FPI inflow and outflow. In August, the net inflow was N13.79 billion, while the outflow amounted to N23.37 billion.
David Adonri, Vice Chairman of Highcap Securities, explained, ‘The initial market-based reforms undertaken at the beginning of this administration initially attracted foreign investors.
However, their enthusiasm gradually diminished due to difficulties in repatriating their trapped dividends and profits.’
Chinazom Izuora, Senior Associate at Parthian Partners, noted that the decline in FPI participation is not necessarily a cause for concern, stating, ‘Foreign investor participation in the Nigerian equity market is influenced by various factors.
It is important to recognize the relationship between the equity and fixed income markets.
Generally, when fixed income market rates rise, investors tend to shift from the equity market to the fixed income market.
Given the rise in interest rates in developed economies, it’s understandable that with higher domestic interest rates, foreign investors may find less incentive to invest internationally.’