Foreign portfolio investments drop to seven-month low – The Nation Newspaper
The decline in foreign investors’ participation in the investment market has reached a new low as Nigeria struggles with global headwinds and macroeconomic risks.
Foreign portfolio investments (FPIs) in the market now at its lowest level in the past seven months, continuing a trend that had seen 14.2 per cent decline in the first quarter.
The latest report on FPIs obtained at the weekend showed that total transactions by foreign portfolio investors dropped by 35.8 per cent to N27.08 billion last month, its lowest level since last September. The report indicated that the proportionate level of participation by FPIs in the equities market nearly halved from 22.8 per cent in March, this year to 13.2 per cent the following month.
The FPI report, coordinated by the Nigerian Exchange (NGX), included transactions from nearly custodians and capital market operators and it is regarded as a credible measure of FPI trend. The report uses two key indicators – inflow and outflow – to gauge foreign investors’mood and participation in the stock market and the economy. While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.
A breakdown indicated that foreign inflows dropped from N16.37 billion in March, this year to N15.02 billion in April. Foreign outflows also declined from N25.8 billion to N12.06 billion in the same period.
Total transactions at the equities market, however, increased to a three-month high at N205.88 billion in April, with domestic investors accounting for N178.80 billion or 86.85 per cent of the total transactions.
Total transactions for the four-month period ended April, this year stood at N898.08 billion compared with N836.46 billion recorded in same period last year.
However, total FPIs for the four-month period stood at N155.99 billion in the year, 12.5 per cent below N178.25 billion recorded in corresponding period last year. This represents nearly four percentage points decline in proportionate level of FPI participation from 21.31 per cent in first four months of 2021 to 17.37 per cent in the first four months of this year.
First quarter FPI report had also shown decline in both the actual value and the proportionate participation of foreign investors in the stock market. Foreign investors’ net participation also remained negative with more outflows than inflows, although the gap narrowed.
Total transactions by FPIs during the first quarter ended March 31, this year stood at N128.91 billion, 14.2 per cent or N21.3 billion below N150.23 billion recorded in comparable period of last year. The proportionate participation of FPIs in the stock market dropped by nearly four percentage points from 22.21 per cent in first quarter oflast year to 18.62 per cent in first quarter this year.
A breakdown of the FPIs indicated continuing country deficit, although the gap between inflows and outflows narrowed considerably. Total FPI inflows stood at N55.33 billion as against outflows of N73.58 billion in first quarter this year. These compared with N60.11 billion and N90.12 billion recorded as inflows and outflows in first quarter 2021.
Total transactions at the stock market had increased from N676.53 billion in first quarter of last year to N692.20 billion in first quarter this year. The uptrend, despite the lull in FPIs, was driven by individual retail investors whose transactions have kept the bulls on at the domestic market.
Total transactions by domestic investors rose from N526.30 billion in first quarter of last year to N563.29 billion in first quarter of this year. Individual retail investors accounted for N265.62 billion in first quarter of the year as against N229.79 billion in first quarter of last year while institutional domestic investors accounted for N215.19 billion in first quarter 2022 as against N296.51 billion in first quarter of last year.
The latest April report and first quarter 2022 performance underlined the continuing low foreign investors’ appetite for Nigerian equities. FPIs in the stock market have dropped consecutively to lowest levels in recent years. FPIs had dropped by 40.4 per cent in 2021 to its lowest level in five years. Active participation of foreign investors in Nigerian market declined by 11 percentage points from about 34 per cent of total market transactions in 2020 to about 23 per cent in 2021.
The full-year FPI report had also shown a significant deceleration in FPI transactions and it was the main reason for the 12.4 per cent decline in turnover of activities at the stock market last year.
Total foreign transactions in Nigerian equities declined to N434.50 billion in 2021 as against N729.20 billion recorded in 2020. Consequently, the percentage participation of FPIs in total market transactions dropped from 33.63 per cent in 2020 to 22.88 per cent in 2021.
The report had, however, shown admirable improvement in the FPI deficit as the gap between inflows and outflows narrowed in 2021 compared with 2020, although the country remains with negative FPIs flow.
FPI inflows and outflows stood N204.88 billion and N229.62 billion respectively in 2021, indicating a deficit of N24.74 billion. These compared with inflows and outflows of N247.27 billion and N481.93 billion in 2020, and a deficit of N234.66 billion.
FPIs had also declined by 22.64 per cent to a four-year low to close 2020 at N729.20 billion as against N942.55 billion recorded in 2019. The decline in FPIs in 2020 counteracted the increase in momentum of activities at the stock market, which saw 12.45 per cent increase in total turnover value.
FPI reports had shown wider gap between foreign portfolio inflows and outflows, implying that foreign investors had divested more than two kobo for every kobo invested in 2020, the worst deficit in recent years.
Total FPIs had increased from N1.208 trillion in 2017 to N1.219 trillion in 2018, before dropping by 22.72 per cent to N942.55 billion in 2019.
FPI reports have shown continuing negative trend in the mix of inflows and outflows, with more outflows than inflows, implying that foreign investors were selling more of their investments than buying more investments. This is known as FPI deficit.
Nigeria recorded FPI deficit of N234.66 billion in 2020, about 125 per cent increase on N104.3 billion recorded in 2019. This implied that foreign investors divested more than two kobo for every kobo invested in 2020. FPI deficit had stood at N66.3 billion in 2018.
The reports had also shown that the quantum of transactions by foreign investors relative to total transactions at the Nigerian market decreased from about 49 per cent of total activities in 2019 to about 34 per cent in 2020. Foreign portfolio inflows stood at N247.27 billion as against outflows of N481.93 billion in 2020. Inflows and outflows had stood at N419.13 billion and N523.42 billion respectively in 2019.
Nigeria’s FPI had slipped into negative with a net…