Forex scarcity reduces foreign portfolio investment to N108.9b
By Jeph Ajobaju, Chief Copy Editor
Foreign exchange (forex) scarcity reduced Foreign Portfolio Investment (FPI) inflow into the stock market in September 2023 (M9 2023), stoked by the inability to access dividends and profits trapped in the Central Bank of Nigeria (CBN).
The Nigerian Exchange Limited (NGX) report on Domestic and Foreign Portfolio Participation in Equity for September 2023 (M9 2023) shows FPI interest in the stock market declined 19.6 per cent year-on-year (YoY) from N321.04 billion in the corresponding period in 2022 to N258.02 billion.
FPI investment was 9.51 per cent of total equity transactions in M9 2023, which stood at N2.71 trillion against 16.30 per cent M9 2022.
Total FPI dropped month-on-month (MoM) to N35.24 billion in M9 2023, a 5.2 per cert dip versus N37.16 billion in M8 2023, and represented 11.91 per cent participation level in M9 2023 against 14.15 per cent in M8 2023.
The initial frenzy that greeted the inauguration of President Bola Tinubu in May and his pronouncement of some market-friendly policies had begun to wane in July because of unclear execution pathway.
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Rising and falling FPI
FPI rose 338.7 per cent to N37.16 billion in May from N8.47 billion in April, raising its participation to 11.15 per cent from 4.43 per cent in April, according to Vanguard.
Again, the figure grew 23.1 per cent to N45.74 billion in June but fell 11.4 per cent to N40.54 billion in July.
It had another decline to N37.16 billion in August before slashing further to its current level.
FPI inflow slid 31.9 per cent YoY to N108.93 billion in M9 2023 from N160.05 billion in M9 2022. Outflow at N149.09 billion was a 7.1 per cent decrease versus N160.99 billion withdrawn by foreign investors year-to-date (YtD) September 2022.
But Chinazom Izuora, Senior Associate at Parthian Partners, explained declining FPI participation in the equity market is not a cause for alarm.
Her words: “There are several considerations around foreign investor participation in the Nigerian equity market. It is noteworthy that there is a correlation between the equity and fixed income market.
“Generally, when rates in the fixed income market go up, investors move from the equity market to the fixed income market. Interest rates in developed economies have been on the rise with more rate hikes anticipated later this year; it’s intuitive that with higher domestic interest rates there is less incentive for foreign investors to invest internationally.”
In her view, foreign participation in the Nigerian equity market will naturally return on expectation of competitive returns if the government implements policies that stimulate economic growth and translate into growth for listed companies.
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