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Tuesday, December 7, 2021

Foreign investment flow via Nigeria’s stock market declines 44% by Aug ~NGX

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Total Foreign Portfolio Investments (FPI) inflow through the Nigerian stock market fell 44.1 percent to N262.85 billion Year-on-Year by August 2021, from N470.2 billion in the corresponding period of 2020.

This is an indications that FPIs are particpation in the local equity market has continue to decline compared with their domestic counterparts.

The latest data from the Nigerian Exchange Limited (NGX) showed that domestic transactions accounted for 78.4 percent of total transactions as of August this year foreign investor transactions accounted for just 21.6 percent.

Specifically, domestic transactions, which comprise retail and institutional investors, recorded N950.76 billion for the YtD as at August while foreign investors recorded N262.85 billion.

Retail rand institutional investors recorded N731.02 billion and accounted for 60.9 percent of total transactions while foreign transaction stood at N470.2 billion representing 39.1 percent of the total transactions for Year to August 2020.

Over the last three years, the market has constantly experienced decline in foreign portfolio investments and it is not likely to change in the near term except government gets things right in the operating environment, especially the forex market.

Reacting to the decline in FPI, financial market operators expressed the view that decline in foreign participation in the Nigerian financial market could be attributed to the current condition of Nigeria’s economic and business space, as well as the security challenges, structure, and policy problems facing the country.

They said government, as well as business stakeholders, will need to take innovative steps to attract foreign investments (FPI and Foreign Direct Investment, FDI) into the country in order to ensure speedy economic growth.”

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Commenting, Analyst/ Head of Research and Investment, Fidelity Securities Limited, Victor Chiazor, said: “Over the last three years, we have constantly seen reduction in foreign portfolio investments YoY and it is not likely to change in the near term except we get things right in the Nigerian economic management system.”

He added: “Issues around security, exchange rate, capital importation and corporate governance amongst others continue to discourage foreign inflow.

”Until foreign investors see concrete policies and effort to correct some of these anomalies, domestic investors will continue to carry the market.”

Reacting as well, analyst, David Adonri said: “There is foreign exchange rate risk attendant to foreign portfolio investments (persistent depreciation of the Naira in recent past is capable of heightening exchange rate risk leading to loss on investments.

”Secondly, foreign portfolio investors’ confidence was eroded by their inability to remit proceeds of their investments recently.

”FPIs normally target short-term public debt due to their extraordinarily high yields and low risk but the sharp decline in yield last year and to date, has been a disincentive to them.

”Finally, FPIs are sensitive to socio-political events. The pervasive insecurity in Nigeria threatens the safety of their investments, hence their low confidence in the economy.”

On the way forward, Adonri said: “The foreign investors need assurance that they can remit their investment proceeds. Higher yield on financial assets, exchange rate stability and socio-political stability can address the deteriorating situation.”

In his own comment, analyst and Managing Director, APT Securities and Funds Limited, Mallam Garba Kurfi, said: “The lack of FX to buy and get out of the country discourages foreign investors and others from coming into Nigeria.

“Many operators have been on queues waiting for their funds to come in, all to no avail. Our returns as a market is poor compared with other frontier markets.”

On way forward, he said:  ”Let the government abolish two-tier pricing of the naira by CBN so that it will encourage inflow and availability of the FX.”

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