Foreign Portfolio Investment, FPI, inflow into the stock market has recorded further decline following lingering difficulties around the release of their trapped dividends and profits due to foreign exchange scarcity.
The Nigerian Exchange Limited (NGX) report on Domestic and Foreign Portfolio Participation in Equity for September 2023, showed that the FPI interest in the stock market fell Year-on-Year (YoY) by 19.6 percent to N258.02 billion in September from N321.04 billion in the corresponding period in 2022.
Details of the report showed that the FPI’s investment represented 9.51 percent of total equity transactions during the period, which stood at N2.71 trillion as against 16.30 percent participation a year ago.
On a Month-on-Month (MoM) basis, the total FPI inflow fell to N35.24 billion in September, indicating a 5.2 percent reduction compared to N37.16 billion they staked in August. This also represents 11.91 percent participation level as against 14.15 percent participation level in August.
The initial frenzy that greeted the inauguration of President Bola Tinubu in May 2023 and the pronouncement of some market-friendly policies by the new president had begun to wane in July as a result of unclear economic execution pathway.
FPI investment had risen by 338.7 percent to N37.16 billion in May from N8.47 billion in April, thereby raising their participation to 11.15 percent from mere 4.43 percent in April. The figure rose again by 23.1 percent to N45.74 billion in June. It, however, fell by 11.4 percent to N40.54 billion in July. it recorded another decline to N37.16 billion in August before declining further to its current position. This has effectively reduced FPI’s participation level to May 2023 level.
Further details show that FPI inflow fell Year-on-Year (YoY) by 31.9 percent to N108.93 billion in September from N160.05 billion in the corresponding period in 2022, while outflow at N149.09 billion, represents a 7.1 percent decrease compared to N160.99 billion withdrawn by foreign investors in Year-to-Date (YtD) in September 2022.
Chinazom Izuora, Senior Associate at Parthian Partners, explained that the declining FPIs’ participation in the equity market is not a cause for alarm, saying: “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.”
She opined that foreign participation will naturally return on expectation of competitive returns if the present administration will roll out good policies that would stimulate economic growth and translate into growth for the listed companies.