Total transactions by foreign portfolio investors in the stock market have risen by about 10 per cent, the second consecutive increase, as foreign investors continued to build up their Nigerian portfolios with increased transactions on the emerging market stocks.
Foreign portfolio investments (FPIs) account for about a quarter of transactions at the market, almost a double of the previous participation level, and one of the highest in recent period.
Latest FPI report obtained at the weekend indicated that total transactions by FPIs rose by 10 per cent to N45.43 billion in February, this year, the second consecutive increase and the second largest FPI transactions in 12 months.
The report showed that while Nigerian investors, who had rallied to sustain a boisterous market in the low period of FPIs, appeared to be slowing down, foreign investors were keen on building further portfolios in the market.The balance of FPI flows remained the same, with almost corresponding increase in inflows and outflows and modest deficit.
The FPI report, coordinated by the Nigerian Exchange (NGX), included transactions from nearly all custodians and capital market operators and it is regarded as a credible measure of FPI trend. The report uses two key indicators – inflow and outflow, to gauge foreign investors’ mood and participation in the stock market and the economy. While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.
The NGX report came on the heels of the release of the capital importation report by the National Bureau of Statistics (NBS) showing 30.6 per cent decline in total capital inflows last year. Despite the decline, the segmented analysis showed that FPI was the largest source of capital inflows last year with $3.4 billion, underlining the importance of the NGX FPI performance and report. Other investment and foreign direct investment (FDI) contributed $2.6 billion and $698.8 million to the total capital import last year.
The NGX FPI report indicated that total FPI transactions rose from N41.31 billion in January 2022 to N45.43 billion in February 2022. Foreign inflows increased from N18.10 billion to N20.86 billion. However, foreign outflows also increased from N23.21 billion in January, this year to N24.57 billion in the following month.
With 51 per cent decline in domestic transactions, total transactions at the NGX had dropped from N323.38 billion in January, this year to N183.56 billion in February. With the increase in FPIs and decline in domestic transactions, the participation level of FPIs almost doubled from 12.77 per cent in January 2022 to 24.75 per cent in February 2022. Domestic investors accounted for 87.23 per cent of the total market transactions in January 2020 as against 77.68 per cent last December.
Total transactions by foreign investors had risen by 16.96 per cent in January 2022, a modest recovery in a long-drawn, mostly negative, fluctuation of foreign trading on Nigerian stocks. Total transactions by FPIs rose to N41.31 billion in January 2022 as against N35.32 billion recorded in December 2021. Trend analysis of the flows had also shown improvement in investment sentiment. FPI inflows had increased from N15.46 billion last December to N18.10 billion in January, this year, an increase of 17.1 per cent. FPI outflows, meanwhile, rose by 16.87 per cent from N19.86 billion last December to N23.21 billion in January 2022.
The January 2022 recovery had set a new trend for 2022, after FPIs in the stock market dropped by 40.4 per cent in 2021 to its lowest level in five years. Active participation of foreign investors in the market declined by 11 percentage points from about 34 per cent of total market transactions in 2020 to about 23 per cent in 2021.
The full-year FPI report also showed a significant deceleration in FPI transactions and it was the main reason for the 12.4 per cent decline in turnover of activities at the stock market in 2021.
Total foreign transactions in Nigerian equities declined to N434.50 billion last year as against N729.20 billion recorded in 2020. Consequently, the percentage participation of FPIs in total market transactions dropped from 33.63 per cent in 2020 to 22.88 per cent in 2021.
The report, however, showed admirable improvement in the overall FPI deficit as the gap between inflows and outflows narrowed considerably last year compared with 2020, although the country remains with negative FPIs flow.
FPI inflows and outflows stood N204.88 billion and N229.62 billion respectively in 2021, indicating a deficit of N24.74 billion. These compared with inflows and outflows of N247.27 billion and N481.93 billion in 2020, and a deficit of N234.66 billion.
FPIs had declined by 22.64 per cent to a four-year low to close 2020 at N729.20 billion as against N942.55 billion recorded in 2019. The decline in FPIs in 2020 counteracted the increase in momentum of activities at the stock market, which saw 12.45 per cent increase in total turnover value.
FPI reports had shown wider gap between foreign portfolio inflows and outflows, implying that foreign investors had divested more than two kobo for every kobo invested in 2020, the worst deficit in recent years.
Total FPIs had increased from N1.208 trillion in 2017 to N1.219 trillion in 2018, before dropping by 22.72 per cent to N942.55 billion in 2019.
FPI reports have shown continuing negative trend in the mix of inflows and outflows, with more outflows than inflows, implying that foreign investors were selling more of their investments than buying more investments. This is known as FPI deficit.
Nigeria recorded FPI deficit of N234.66 billion in 2020, about 125 per cent increase on N104.3 billion recorded in 2019. This implied that foreign investors divested more than two kobo for every kobo invested in 2020. FPI deficit had stood at N66.3 billion in 2018.
The reports also showed that the quantum of transactions by foreign investors relative to total transactions at the Nigerian market decreased from about 49 per cent of total activities in 2019 to about 34 per cent in 2020. Foreign portfolio inflows stood at N247.27 billion as against outflows of N481.93 billion in 2020. Inflows and outflows had stood at N419.13 billion and N523.42 billion respectively in 2019.
Nigeria’s FPI had slipped into negative with a net deficit of N66.2 billion in 2018 after a world-leading stock market rally left the country with a surplus of N336.94 billion in 2017. Total foreign inflows in 2018 stood at N576.45 billion compared with outflows of N642.65 billion. Foreign inflows had in 2017 outpaced outflows at N772.25 billion and N435.31 billion respectively.
Most analysts have blamed Central Bank of Nigeria (CBN)’s management of the country’s foreign exchange (forex) for the decline in foreign investors’ appetite for Nigerian stock market. They said the opaque forex system amidst uncertainties and threats of devaluation did not provide the needed stability for foreign participation.
“However, we observe that FPI has been on a declining trend since 2020 after it dropped from $16.4 billion in 2019 to $5.1 billion in 2020 and $3.4 billion in 2021. We opine that the declining FPI inflows reflects the poor macroeconomic conditions in the last three years combined with Nigeria’s foreign exchange crisis (forex) and several capital control measures implemented by the Central Bank of Nigeria (CBN) which negatively impacted foreign investors’ participation in Nigeria,” Afrinvest Securities stated at the weekend.
“Over the medium term, we expect foreign inflows to remain challenged by the lack of flexibility in the forex framework, inadequate structural reforms and election uncertainties,” analysts at Cordros Securities stated at the weekend.
The fourth quarter 2021 report on capital importation had shown that total capital inflows declined 30.6 per cent to $6.7 billion in 2021, the lowest since $5.7 billion recorded in 2019. The decline was driven by drops across the segments with 18.1 per cent, 9.1 per cent and 3.4 per cent decrease in contributions of FPI, FDI and other investment respectively.
However, quarterly analysis by Afrinvest Securities indicated that capital importation rose by 26.4 per cent to $2.2 billion in fourth quarter 2021 from $1.7 billion in third quarter 2021. This quarter-on-quarter growth was driven by 232.3 per cent improvement in FDI to $358.2 million and 192 per cent increase in other investment to $1.2 billion. FPI contracted in fourth quarter by 47.2 per cent to $642.9 million, due to declines across the segments. Bond investment had dropped by 87.4 per cent to $45.9 million while equity and money market investments fell by 32.7 per cent and 29.8 per cent respectively to $38.0 million and $559.0 million in fourth quarter2021.