Trading floor of the Nigerian Stock Exchange
Indications emerged at the weekend that the declining trend in the flow of foreign portfolio investment in equity trading on the Nigerian stock market is yet to abate as local investors continue to hold the ace.
According to data reeled out by the Nigerian Stock Exchange (), FPI flow, which stood at 15% in 2007, consistently increased over the years to stand at 67% in 2011 but dropped to 61.4% in 2012.
The declining trend of FPI Flow continued in 2013. Consequently, domestic investors increased their share of the market from 33.2% in 2011 to 38.6% and to 61% in 2013.
Domestic investors can be categorised into either institutional or retail investors. For instance, a comparison of the total flows with the transactions on the NSE showed that in 2007, the total FPI flow was N615.63 billion at a period when transaction on the exchange was put at N4.171 trillion.
Out of this, foreign portfolio investors held 14.8 percent of the investment while the remaining 85.2 percent was in the hands of domestic investors.
In 2008, the story was not different. FPI inflow was put at N787.4 billion while the total transactions on the NSE were N4, 758.27 trillion.
Out of this figure, 16.5 percent of the transactions was held by foreign portfolio investors while local investors held 83.5 percent.
FPI inflow in 2009 was slightly lower but its contribution to the activities in the stock market was ironically higher than the two previous years.
FPI inflow was put at N424 billion, while it formed 31 percent of transactions in the stock market at a period when domestic investors held 69 percent of activities.
For the year 2010, FPI inflow was N577.3 billion out of N1.6 trillion transactions.
Of this figure, 36.1 percent of the transactions was done by foreign portfolio investors while 63.9 percent was handled by domestic investors.
In 2011, foreign portfolio investors handled the biggest chunk of activities in the Nigerian stock market with FPI inflow put at N847.9 billion out of N1.3 trillion transactions for the year.
In 2011, 66.8 percent of the transactions went to foreign portfolio investors while their local counterparts settled for 33.2 percent of the transactions.
It was also a harvesting period for foreign portfolio investors in 2012 where N808.4 billion worth of investment was made by foreign investors in a year when the total transaction was put at N1.3 trillion.
Out of this figures, 61.4 percent was undertaken by foreign portfolio investors whereas, their local counterparts were responsible for the remaining 38.6 percent.
However, a downward trendhas been noticed so far this year.
So far, the total FPI has been put at N140 billion, representing a 39.3 percent of the transaction in the market whereas domestic investors held 60.7 percent.
On a monthly basis, the Exchange polls trading figures from major custodians and market operators on their foreign portfolio clients.
However, because of the transient nature of foreign portfolio investments all over the world, there are growing anxiety that the current confidence on the Nigeria’s foreign reserves could be short-lived should the investors decide to take their luck elsewhere.
The fear informed the suggestion of experts that the apex bank might be considering policies to discourage capital flight from Nigeria.
One of the financial market players that expressed worry over the growing trend in a recent interview with THISDAY is the Managing Director/Chief Executive, Cowry Asset Management Limited, Mr. Johnson Chukwu.
In his response to THISDAY enquiries, Chukwu said: “The heightened patronage of Nigerian securities by foreign portfolio investors has had the effect of triggering market rallies in equities and debt instruments with attendant appreciation in stock and bond prices (with attendant decline in bond yields).
These inflows have also contributed significantly to the build-up in Nigerian foreign reserve, which appreciated by over 34% in 2012.”
However, the financial analyst said, “The challenge with the huge presence of foreign portfolio investors in the country’s capital market is the heightened risk of market reversal and possible market crash should these portfolio investors have any reason to exit the market.
“Beyond a capital market crash, their exit would also lead to a sharp depletion of the country’s foreign reserve and possibly exchange rate devaluation with the attendant inflationary impact,” he said.