STOCK MARKET FOREGIN INFLOWS AT A 15-YEAR LOW ON THE NGX
Recent data from the Nigerian Exchange Limited (NGX) reveals a continuous decline in foreign investors’ purchases of Nigerian stocks for the sixth consecutive year. Despite market reforms that triggered a significant rally, the latest official figures indicate foreign investors have maintained a cautious stance, staying on the sidelines.
“Last year, foreign investors purchased stocks totaling N174.80 billion, marking the lowest figure since 2008, compared to N195.76 billion in 2022, as per NGX data. The decline is reminiscent of the global financial crisis in 2008 when foreign inflows plummeted to N153.46 billion, coinciding with a stock market crash in Nigeria. Additionally, foreign investors divested stocks valued at N235.82 billion in the past year, a notable increase from the total sales of N183.47 billion in 2022.”
With higher foreign outflows observed in 2023, the market reversed the net inflows of N12.29 billion seen in 2022, marking the first net outflow since 2017.
Foreign participation in the market declined from 16.32 percent in 2022 to 11.48 percent, while domestic investors’ share of total transactions increased from 83.68 percent to 88.52 percent.
Data from NGX reveals a net foreign outflow of N61.02 billion in 2023, despite the market’s rally, making it the first time the market experienced a positive performance in an election year since 2007, reaching a 15-year high.
The market concluded the year with a return of 45.90 percent, more than double that of 2022 and the highest in three years, according to data compiled by BusinessDay.
Analysts and industry observers attribute the robust performance in the past year to President Bola Tinubu’s implemented reforms, corporate earnings, and new listings on the NGX.
“The government’s policy stance has revitalized confidence in Nigeria’s financial market, attracting both domestic and foreign investors. The Nigerian Economic Summit Group (NESG) highlighted in its macroeconomic outlook report for 2024 that swift and decisive reforms, including the removal of fuel subsidies and the harmonization of foreign exchange market rates, played a crucial role in this rejuvenation. Despite being predominantly driven by domestic investors, the market witnessed a more than seven-fold surge in foreign inflows into Nigerian stocks in May last year, reaching N27.51 billion. This surge, the highest since December 2021, coincided with a market upswing in the last two trading days of May, following President Bola Tinubu’s announcement of petrol subsidy removal on May 29.
However, the increased foreign participation proved short-lived as foreign exchange scarcity persisted in the country. Nigeria, Africa’s largest economy, has grappled with a dollar shortage since 2016, triggered by its first recession in over two decades, induced by the oil price collapse starting in mid-2014 and a sharp decline in oil production.”
The most recent capital importation data from the National Bureau of Statistics reveals a decline in portfolio investment in equities to $8.37 million in the third quarter of 2023, down from $8.52 million in Q2 and $222.31 million in Q1.
Despite government efforts, anticipated investment has not materialized, potentially attributed to a delayed impact of crucial reforms. The Nigerian Economic Summit Group (NESG), a private sector-led think tank, emphasized the importance of enhancing clarity and transparency in the reform process to boost investor confidence.
Bismarck Rewane, Managing Director of Lagos-based Financial Derivatives Company Limited, noted that low sovereign credibility and a weak FX market structure contribute to low investor confidence in Nigeria. In a presentation at a recent LBS Breakfast Meeting, he emphasized that investment is contingent on confidence in the economy, suggesting that building confidence and adjusting interest rates are key to increasing investment.
Source: Techeconomy
