Investors apathy to Nigerian securities amid foreign exchange control, illiquidity and other macroeconomic risks have affected foreign portfolio investments in the local markets.
The investments have dropped by N124.3 billion going by the latest Foreign Portfolio Investment (FPI) Report released on Thursday.
It (report) showed a 20 per cent reduction in total foreign portfolio transactions to N470.2 billion by August 31, compared with N594.46 billion recorded in the corresponding period of 2019.
The report also showed that Nigerian FPIs remained in deficit with more outflows than inflows, implying that more foreign investors were selling than those buying. Total FPIs included both inflows and outflows. While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.
The report showed FPI net deficit quadrupled to –N147.58 billion for the eight-month period ended August 2020 as against –N37.92 billion recorded in comparable period of 2019. Total FPI outflows and inflows stood at N308.89 billion and N161.31 billion respectively by August 2020 as against N316.19 billion and N278.27 billion respectively in corresponding period of 2019.
The FPI report, coordinated by the Nigerian Stock Exchange (NSE), included transactions from nearly all custodians and capital market operators and it is widely 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 as a barometer for the economy.
Month-on-month analysis however showed 12.7 per cent increase in total FPIs in August at N38.98 billion and the FPIs dropped to a new low in the previous month, after hitting a 29-month low in May 2020.
The FPIs dropped from its previous low of N35.24 billion in May 2020 to a new low of N34.59 billion or $89 million in July 2020, reversing the dead cat bounce of N56.3 billion or $90.89 million in June 2020.
FPI inflows rose from N13.70 billion in July 2020 to N17.66 billion in August 2020 while outflows also increased from N20.89 billion to N21.32 billion.
Total transactions at the Nigerian equities market closed the eight-month period ended August at N1.20 trillion, 9.2 per cent below N1.32 trillion recorded during the comparable period of 2019. These included trading by domestic investors, which increased to N731.02 billion by August as against N728.51 billion by August 2019.
Some analysts blamed the continuing decline in foreign investments and preponderance of outflows to foreign exchange illiquidity orchestrated by Central Bank of Nigeria (CBN)’s capital controls programme.
Afrinvest Securities said the introduction of capital controls amid foreign exchange illiquidity had left foreign investors stuck in the market and made Nigeria less attractive as an investment destination.
“The wide premium between exchange rates at the parallel market and the Investors & Exporters (I & E) window also suggests a mispricing of the currency, which makes investors and businesses reluctant to bring in capital,” Afrinvest stated.
Earlier, the half-year report had shown that for every naira invested, foreign portfolio investors took out two naira in the first half of this year. Foreign portfolio outflows had risen to N266.68 billion in first half of 2020 as against inflows of N129.95 billion, representing a net FPI deficit of N136.7 billion.
The deficits of N136.7 billion in first half 2020 represented 31.1 per cent increase on N104.29 billion recorded for the whole of 2019.
Total FPIs for the six-month period ended June 30, 2020 stood at N396.63 billion. Total FPIs during the first half of 2019 had stood at N472.78 billion with outflows and inflows at N257.81 billion and N214.97 billion respectively.
Total FPIs for the seven-month period ended July 31, 2020 dropped to N431.22 billion with outflows and inflows of N287.57 billion and N143.65 billion respectively, compared with total FPIs of N530.57 billion, including outflows and inflows of N287.22 billion and N243.35 billion, recorded in comparable period of last year.