A recent report on equity trading in Nigeria indicates that foreign transactions in the country's equities have been steadily increasing since May. However, despite this uptick, domestic investors still dominate the market.
According to the report, domestic investors have accounted for a staggering 90 percent of all equities transactions in the year-to-date (YtD) period, leaving foreign investors with only a 10 percent share. During the first half of 2023, total equities transactions amounted to N1.451 trillion, with domestic investors responsible for N1.306 trillion, and foreign portfolio investors contributing N145.08 billion.
Despite a stabilization of foreign transactions midway through the year, it is clear that foreign investors are showing more interest in selling their Nigerian stocks rather than investing further. In May, foreign inflow was N27.51 billion, while foreign outflow was N9.65 billion. The trend continued in June, with foreign inflow amounting to N22.72 billion, and outflow reaching N23.02 billion.
In a research note titled "Will foreign portfolio investors return?", analysts from Lagos-based Coronation suggest that a significant return of foreign portfolio investors is unlikely. They cite several factors contributing to this reluctance. Historically, foreign participation in the Nigerian equity markets was much higher, sometimes accounting for up to 50 percent of turnover. However, consecutive years of negative market performance, issues with repatriation of dividends and principal, and other concerns have dissuaded foreign investors.
While the NGX All-Share Index recorded positive returns for three consecutive years (2020, 2021, and 2022), the share of foreign investors in trading decreased during this period. Even with an 84 percent jump in foreign participation from January to June 2023, it still only represents approximately 10 percent of the market.
Coronation analysts believe that given the changes in the foreign exchange and interest rate environments and the past disappointments in the equity market, foreign portfolio investors are unlikely to make a strong comeback this year. They predict that this situation is unlikely to change before the end of the year.
The report sheds light on the current state of Nigeria's equity market and highlights the need for efforts to restore confidence and attract foreign investors. It remains to be seen how policy reforms and economic stability will shape the future landscape of the country's equities market.
