More transactions are occurring on the buy side than the sale side, indicating that foreign investors’ desire for Nigerian stocks is growing.
FPI inflows currently outnumber outflows by 27%, according to the most recent foreign portfolio investment (FPI) report. The total amount of transactions made by foreign investors on the Nigerian market so far this year were also roughly 15% higher than during the same period in 2021.
The FPI report, organised by the Nigerian Exchange (NGX), also showed a favorable trajectory in trade fluctuation this year, with inflows and outflows switching positions on the trend chart at an equal pace of four months each.
The total value of FPI transactions for the eight months that concluded in August 2022 was N301.37 billion, a 14.66% increase over the N262.85 billion total for the same time in 2021.
Total inflows for the year to date were N149.97 billion compared to N123.46 billion in the same time of 2021, a rise of 21.5%. Total outflows, however, increased by only 8.6% to N151.40 billion in 2022 from N139.39 billion in the same period of 2021.
The difference between outflows and inflows, or the foreign portfolio deficit, decreased significantly as a result, falling from N15.93 billion in the eight months that ended in August 2021 to N1.43 billion in August 2022.
According to a monthly review, FPI inflows outpaced outflows in August as more foreign investors placed larger bets on Nigerian stocks than those selling. FPI inflows increased to N15.78 billion in August 2022 from N13.68 billion in July 2022. From N16 billion in July 2022 to N12.43 billion in August 2022, outflows decreased.
The FPI report, which is widely regarded as a reliable indicator of FPI trend, comprised transactions from almost all custodians and capital market participants. The report combines two important indicators—inflow and outflow—to assess the sentiment of foreign investors and their involvement in the stock market and the overall economy. Total FPI represents the velocity and degree of participation, whereas inflows and outflows indicate the direction of portfolio transactions.
The most recent trend indicates a favorable prognosis and suggests that the overall negative position of FPIs may be changing. Following a world-beating stock market surge that left the country with a surplus of N336.94 billion in 2017, Nigeria’s FPI had fallen into negative territory with a net deficit of N66.2 billion in 2018. In 2018, there were N576.45 billion in total foreign inflows and N642.65 billion in total outflows. In 2017, foreign inflows totaled N772.25 billion and outflows totaled N435.31 billion, respectively.
In recent years, FPIs on the Nigerian stock market had fallen steadily to their lowest levels.
FPIs fell by 40.4% in 2021, reaching their lowest point in five years. From around 34% of all market transactions in 2020 to about 23% in 2021, active foreign investor engagement in the market fell by 11 percentage points.
The full-year FPI data had also revealed a notable slowdown in FPI transactions, which was the primary cause of the 12.4% fall in activity turnover at the Nigerian stock market in 2021.
Total foreign investment in Nigerian stocks fell from N729.20 billion in 2020 to N434.50 billion in 2021. As a result, the proportion of FPIs in overall market transactions decreased from 33.63% in 2020 to 22.88% in 2021.
Despite the fact that the country continues to have a negative FPI flow, the report showed a commendable reduction in the total FPI deficit as the difference between inflows and outflows shrunk significantly in 2021 compared to 2020.
In 2021, FPI inflows and outflows were N204.88 billion and N229.62 billion, respectively, showing a N24.74 billion imbalance. These contrasted with N247.27 billion in inflows, N481.93 billion in outflows, and N234.66 billion in deficit in 2020.
As of the end of 2020, FPIs had likewise decreased by 22.64 percent, reaching a four-year low of N729.20 billion, down from N942.55 billion in 2019. The decrease in FPIs in 2020 was a direct result of the stock market’s general uptick in activity, which resulted in a total turnover value gain of 12.45%.
The largest deficit in recent years, according to FPI data, was in 2020, when foreign investors sold more than two kobo worth of their investments for every kobo they put in.
Total FPIs rose from N1.208 trillion in 2017 to N1.219 trillion in 2018, then fell by 22.72% to N942.55 billion in 2019.
The mix of inflows and outflows has continued to trend negatively, with more outflows than inflows, indicating that foreign investors were selling more of their investments than buying more. The term for this is FPI deficit.
Nigeria’s FPI deficit increased by almost 125 percent to N234.66 billion in 2020 from N104.3 billion in 2019. According to this, for every kobo that foreign investors invested in 2020, they sold more than two kobo worth of stock. In 2018, the FPI deficit was N66.3 billion.
The data also indicated that the amount of transactions made by foreign investors as a percentage of all transactions at the market fell from approximately 49% of total activities in 2019 to approximately 34% in 2020. Inflows into foreign portfolios were N247.27 billion, compared to withdrawals of N481.93 billion in 2020. 2019 saw N419.13 billion in inflows and N523.42 billion in outflows.
Analysts had ascribed Nigeria’s financial and economic difficulties to the fall in foreign investment inflows.
Over the medium run, foreign inflows would likely stay below pre-COVID-19 levels, according to analysts at Cordros Capital.
Three main problems, according to analysts, would keep driving away international investors and limiting the country’s potential as a worldwide investment destination.
Analysts claim that insufficient structural reforms and the rigidity of the foreign exchange (forex) management system are the main issues deterring international investors from the Nigerian market.
Analysts also noted that as Nigeria gradually comes closer to the general elections of 2023, international investors may be apprehensive about the atmosphere of unpredictability and political dangers.