New equity market report raises concern, as foreigners cut investments in Nigeria

Equity market transactions in Nigeria rose by 72.83 per cent month-on-month, as the stock market recorded N702.9 billion traded in July 2023, the Nigerian Exchange Limited (NGX) has disclosed in a new report.

The Domestic and Foreign Portfolio participation report showed that international and local stock market traders raised the value of their transactions from N406.75 billion reported in June.

However, this surge was largely driven by domestic investors after equity trades among local investors rose by 83.50 per cent, a significant increase when the N361.01 billion posted in June is compared to the N662.44 billion netted in July.

Unfortunately, the foreign investors didn’t show similar enthusiasm as their local counterparts, having recorded N40.54 billion in July 2023, which is an 11.37 per cent decrease compared to June’s N45.74 billion.

The decline raises concern, as domestic investors accounted for 94.2 per cent of the total market transactions, while foreign investors held 6.5 per cent.

While local investors increased their participation from 88.5 per cent reported in June, the international investors reduced theirs from 11.24 per cent recorded in June.

The decrease in foreign participation in Nigeria’s stock market doesn’t just leave the bourse unbalanced, it also reduces the Foreign Portfolio Investments (FPI) into the country at a period of foreign exchange scarcity.

Recall that President Bola Tinubu has been making some reforms that excited equity investors in June, leading to a bullish run, pushing the bourse to All-Time High last seen in 2008, as the NGX grew in valuation by 9.32 per cent in June, up from 6.42 per cent in May.

Some of the reforms implemented in June include the removal of fuel subsidies, naira devaluation, as well as unification of the multiple exchange rates to adopt market reality and let demand and supply determine rates and fuel prices.

However, Ripples Nigeria notes that much of the excitement was among domestic investors and not foreigners according to data seen by this publication.

Foreign investors reduced their inflow into the equity market from N27.51 billion in May to N22.72 billion in June. The figure greatly depreciated in July to N9.45 billion.

Also, foreign outflow rose from N9.65 billion in May to N23.02 billion in June and N31.09 billion the following month, indicating a dip in foreign investors’ confidence in the Nigerian stock market and showing little or no positive impact of Tinubu’s policies to reboot their confidence in the Nigerian market.

It shows foreign investors have continued their exit from the Nigerian stock market under Tinubu as experienced during the administration of his predecessor and party member, Muhammadu Buhari.

Prior to Buhari’s tenure, foreigners accounted for more equity participation, however, during the former President’s administration, foreign investments slumped to 16.67 per cent in December 2022, from 54 per cent in December 2015.

In April 2023, the Chief Executive Officer of NGX, Temi Popoola, had hoped that Tinubu’s policies would positively impact the market while speaking about the influence of foreign investors’ exit on Exchange Traded Funds (ETFs).

“It is incumbent to state that current macro-economic challenges resulting in the exit of Foreign Investors, impacted the ETFs space which resulted in a sharp dip in the ETFs market Cap from 2020 highs of N24.5bn.

“We are hopeful that the policy tilt of the new administration would impact positively on our market,” Popoola said in the report published on NGX.

Also, Tinubu had assured during his inauguration speech that his policies would target foreign investors in a bid to bring them back into the Nigerian business environment, however, the NGX data showed that reverse has been the case and the president is failing to do as promised.

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