Foreign Investors’ Outflow in Stock Market Down 20.6% to N183.47bn on Inflation, FX Scarcity

Kayode Tokede

Following the scarcity of foreign exchange, a double-digit inflation that eroded investment, political uncertainty, among others, foreign investors’ outflow in the domestic stock market dropped by 20.6 Per cent to N183.47 billion from N229.62billion reported in 2021.

The domestic & foreign portfolio participation in equities report obtained exclusively by THISDAY from the Nigerian Exchange Limited (NGX) showed that foreign investors inflow also dropped to N195.76 billion in 2022 from N204.88 billion in 2021.

Analysis of the numbers showed that out of the N2.32 trillion total trades in 2022 as against N1.89 trillion in 2021, foreign investors’ exposure in fundamental stocks such as Airtel Africa Plc, MTN Nigeria Communication Plc, Seplat Petroleum, among others dropped to N379.23 billion from N434.5 billion the previous year.

On the flip side, domestic investors that comprises of retail and institutional’s exposure in stocks increased to N1.95 trillion in 2022 from N1.46 trillion in 2021 and it reflected in some highly capitalised stocks on the bourse.

This means that domestic investors participation in the stock market surpassed foreign investors by 83.68 per cent in 2022 from 77.12 per cent reported in 2021, while foreign investors exposure dropped further to 16.32per cent in 2022 from 22.88 per cent in 2021.

Also, domestic retail investment in stocks moved to N642.73 billion in 2022 from N578.12 billion in 2021, while domestic institutional investors increased to N1.302.31 billion in 2022 from N886.61 billion reported in 2021.

The stock market had closed positive in 2022, gaining N5.62 trillion in market capitalisation and 19.98 per cent in NGX benchmark All-Share Index. 

Foreign investors was dominating the stock market till 2015 but the trend changed in 2016 when gloom dominated global market– falling stock markets, low commodity prices, risks of debt crises in developing countries and risks of deflation.

Between 2016 and 2022, domestic investors outpaced foreign investors as analysts stated that shields the market from the impacts of funds outflow from emerging markets and global headwinds.

The report further revealed that domestic investors still dominate the stock market in its Year-till-Date performance, trading over 83.19 per cent, the highest so far in many years. 

Analysts believe foreign investors have been on the sidelines for a while because of difficulties in repatriating funds over the past couple of years.

“Foreign exchange shortages have meant that some of our clients have been on queues at the Central Bank of Nigeria (CBN) for some time. This has resulted in a loss of appetite from the FPI community and these trades you see are mostly recycled cash. At the same time, PFAs were relatively more involved in the equities market last year, ”said Senior Vice President, FBN Quest, Uwa Osadiaye.

The stock market in 2022 was faced with mixed outcomes following the action of the Central Bank on its monetary policies.

In a dire attempt to douse down the growing inflation rate, the CBN had raised the MPR to 16.5 per cent from 11.5 per cent, and the world economy, according to the World Bank may be edging towards a global recession in 2023 and a string of financial crises in emerging market and developing economies.

Speaking with THISDAY, the CEO Wyoming Capital and Partners, Mr. Tajudeen Olayinka was of the opinion that the issue is not about local investors’ dominance, but the sufficiency of market turnover that is still below the threshold expected from the size of the Nigerian economy.

According to him, “That is to say the level of our market turnover relative to our country’s Gross Domestic Product (GDP) is still insignificant. The market is still relatively small and needs to attract more local and foreign investors’ participation, to be able to attain an equivalent size of the South African market.

“So, while local investors’ dominance has helped to reduce the usual volatility associated with the market, the near absence or low level of foreign portfolio investors’ participation in the market has denied the Nigerian foreign exchange market the optimum level of liquidity required to support the drive for economic growth. Therefore, local and foreign participations in the good mix are essential for the development of the market, ”he added. 

Speaking with THISDAY, the Vice President, Highcap Securities, Mr. David Adnori attributed foreign investors’ decline in the stock market to foreign exchange scarcity, stating that domestic investors have increased their holding in some listed fundamental stocks on the Exchange.

According to him, “Foreign investors are not investing again in Nigeria’s stock market, leading domestic investors to dominate the market. The decline in foreign investors’ confidence in the economy of Nigeria also another key issue.

“If you consider the debt area, a lot of foreign investors usually invest in Nigeria’s public debt. As it is now, a lot of them have stayed away over looming fear that the government may not be able to service those debts.”

He noted that foreign investors are critical in the global stock market.

He explained that, “With more foreign investors, there will be more foreign currencies you will have in an economy. What is happening now is that our macro economy has been mismanaged with debt crisis. The federal government needs new debts to service existing debts. It is a worrisome situation for foreign investors and it is contributing to their existing in the stock market.”

On his part, the Chief Operating Officer, Supra Commercial Trust Limited, Mr. Charles Fakrogha explained that, “Recently, domestic institutional investors have dominated the stock market. I will not blame foreign investors for exiting the market as they are here for a short time. Once there is any negative report in the domestic stock market, the next thing is for foreign investors to move their portfolio to another market.

“We all want foreign investors but at the same time, we have been canvasing that retail/institutional investors owned the market. With domestic investors surpassing foreign investors, it now shows they are aware of the need to develop their stock market.”

He noted that economic parameters must be favourable for domestic investors to invest in the stock market and drive liquidity.

“However, we have witnessed retail investors losing money during the global meltdown and it will be difficult to attract them to the market right now. High network and institutional investors always diversify their portfolio to another market and they are well poised to remain in the market.”

In addition, a Stockbroker and Capital Market Analyst, Mr. Rotimi Fakayejo explained that the instability of the naira is eroding foreign investors away from the stock market.

He said, “foreign investors exposed to the stock market currently at its lowest rate. We might not see foreign investors coming back until last quarter in 2023.”

On what is driving domestic investors’ participation in the stock market, he said the market has witnessed price stability.

He added, “The kind of volatility we used to have before is no longer there. Most of the volatility seen before was caused by the foreign portfolio investors.”