Amid 2023 political uncertainty and scarcity of foreign exchange, foreign portfolio investments in the Nigerian stock market dropped to 16.67 per cent in 11 months of 2022, the lowest level in over 9 years.
This is in contrast to 22.93 per cent foreign portfolio investments in 11 months of 2021.
THISDAY investigation revealed that foreign portfolio investment in 11 months of 2013 stood at 46.59 per cent and it increased to 80.92 per cent in 11 months of 2014.
The Nigerian Exchange Limited (NGX) domestic & foreign portfolio participation in equity trading report showed that foreign portfolio investments in 11 months of 2015 stood at 56.81 per cent, while in 11 months of 2016 it was at 44.86 per cent.
Further breakdown revealed that foreign portfolio participation in the stock market trading was at 48.55 per cent in 11 months of 2017; 50.87 per cent in 2018; 48.85 per cent in 2019 and 34.72 per cent in 2020.
The stock market in 2022 has witnessed mixed performance amid a hike in the inflation rate and Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN).
In a desperate attempt to tame the growing inflation rate, the CBN had raised the MPR to 16.5 per cent from 11 per cent, and the world economy, according to the World Bank may be edging towards a global recession and a string of financial crises in emerging market and developing economies in 2023.
On the backdrop of impressive corporate earnings by some key companies and low yield in the fixed-income market, among other factors, the stock market segment of the NGX has gained per cent in 11 months of 11.57 per cent in 11 months of 2022 and highly dominated by domestic investors that comprises of retail domestic/ institutional investors.
Capital market analysts have expressed that the MPR increase, uncertainty towards the 2023 political elections, inflation rate and most especially the scarcity of foreign exchange have contributed to foreign investors’ exit.
Findings by THISDAY revealed that Naira at the Investors & Exporters (I & E) Foreign Exchange Market depreciated to N 451.50/ Dollar as of December 19, 2022, from N412.99/ Dollar it closed in 2021.
CEO Wyoming Capital and Partners, Mr Tajudeen Olayinka attributed the drop to foreign exchange challenges.
According to him, “The only explanation for that is the disappointing exchange rate misalignment in Nigeria and the need to limit possible exposure to foreign exchange risk.”
He noted that solution to the problem lies in unifying the exchange rate regime and allowing foreign exchange market to function.
The Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion also highlighted that foreign exchange market challenges, 2023 election fear and rising interest rates weaken foreign portfolio investments in Nigerian stock market.
Speaking with THISDAY, the Vice President of Highcap Securities, Mr. David Adnori attributed the foreign investors’ decline in the stock market to foreign exchange scarcity, stating that domestic investors have increased their holding in some listed fundamental stocks on the Exchange.
According to him, “Foreign investors are not investing again in Nigeria’s stock market, leading domestic investors to dominate the market. The decline in foreign investors’ confidence in the economy of Nigeria is also another key issue.
“If you consider the debt area, a lot of foreign investors usually invest in Nigeria’s public debt. As it is now, a lot of them have stayed away over looming fear that the government may not be able to service those debts.”
He noted that foreign investors are critical in the global stock market.
He explained, “With more foreign investors, you will have more foreign currencies in an economy. What is happening now is that our macro economy has been mismanaged by the debt crisis. The federal government needs new debts to service existing debts. It is a worrisome situation for foreign investors and it is contributing to their exit from the stock market.”
The MD, Head of Strategy at EFG Hermes Research, Mr. Simon Kitchen recently disclosed that foreign investors are finding it hard to get their foreign exchange out of both frontier markets.
Speaking at a virtual event, he noted that, “In Nigeria, foreign exchange is a long-standing problem. Foreign Exchange has been scarce since 2020 and foreigners are just impossible to take money out of the Nigerian economy if they sell stocks. In Kenya, it has become a problem.
“Nigeria and Kenya together make up more than 10per cent of that frontier market index and that means that the $150 million that came in the past three weeks, $15 million should have gone into Nigeria and Kenya markets.
“What it means is foreigners just aren’t putting that money in and so I think, from a foreign investor point of view, it is absolutely critical that authorities in these two countries fix the FX situation.”
He expressed optimism about Nigeria’s foreign exchange market in 2023 amid the change in political leadership with the forthcoming general elections.
He stated that, “The change in leadership could create an opportunity for the new government to draw a line under the years of orthodox policies and take the right decision in fixing the foreign exchange crisis and fix finances on a sustainable growth.”
He noted that once foreign exchange challenges are tackled, Nigeria would witness an inflow of foreign funds.
On how to drive stock market growth, he urged pension funds in Nigeria and Kenya to invest more money in stocks, calling on regulators to change incentives.
However, the NGX in a report last month disclosed that, “As at 30 November 2022, total transactions at the nation’s bourse decreased by 5.19per cent from N110.09billion or about $248.50million in October 2022 to N104.38billion or about $234.88million in November6 2022.
“The performance of the current month when compared to the performance in November 2021 (N196.14billion) revealed that total transactions decreased by 46.78per cent. In November 2022, the total value of transactions executed by Domestic Investors outperformed transactions executed by Foreign Investors by circa 72per cent.
“A further analysis of the total transactions executed between the current and prior month (October 2022) revealed that total domestic transactions increased significantly by 10.31per cent from N81.54billion in October to N89.95billion in November 2022.
“However, total foreign transactions decreased by 49.46per cent from N28.55billion or about $64.45million) to N14.43billion or about $32.47million between October 2022 and November 2022.”
The report added that over a 15-year period, domestic transactions decreased by 58.80 per cent from N3.556 trillion in 2007 to N1.465trillion in 2021 whilst foreign transactions also decreased by 29.38per cent from N616billionn to N435billionn over the same period.
“Total domestic transactions accounted for about 77per cent of the total transactions carried out in 2021, whilst foreign transactions accounted for about 23per cent of the total transactions in the same period.
“The transaction data for 2022 shows that total domestic transactions are circa N1.820trillion, whilst total foreign transactions are circa N364.02 billion, “it stated.