Foreign Portfolio Investment (FPI) inflow into the stock market has continued to decline due to challenges related to the release of foreign dividends and profits caused by the scarcity of foreign exchange.
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According to the Nigerian Exchange Limited (NGX) report on Domestic and Foreign Portfolio Participation in Equity for September 2023, FPI investment in the stock market fell by 19.6 percent year-on-year to N258.02 billion in September 2022 from N321.04 billion in September 2021. FPI investment also fell to 9.51 percent of the total equity transactions during the period, which amounted to N2.71 trillion. In comparison, FPI investment represented 16.30 percent of total transactions in the same period the previous year.
FPI investment also decreased month-on-month by 5.2 percent to N35.24 billion in September, down from N37.16 billion in August. This represents an 11.91 percent participation level, compared to 14.15 percent in August.
Analysts noted that the optimism that greeted President Bola Tinubu’s inauguration in May and the government’s market-friendly policies has waned due to the lack of a clear economic execution plan.
FPI investment rose by 338.7 percent to N37.16 billion in May from N8.47 billion in April, pushing their participation level to 11.15 percent from 4.43 percent in April. The figure then rose by 23.1 percent to N45.74 billion in June but dipped by 11.4 percent to N40.54 billion in July, further dropping to N37.16 billion in August and declining to N35.24 billion in September.
Foreign portfolio investment in September 2022 was 31.9 percent lower than the N160.05 billion invested in September 2021, while outflow at N149.09 billion was 7.1 percent below N160.99 billion withdrawn in Year-to-Date (YtD) September 2021.
Chinazom Izuora, a senior associate at Parthian Partners, said the declining FPI participation in the equity market is not a cause for concern, pointing out that there is a correlation between the equity and fixed income markets.
“Generally, when rates in the fixed income market go up, investors move from the equity market to the fixed income market. Interest rates in developed economies have been on the rise with more rate hikes anticipated later this year, it’s intuitive that with higher domestic interest rates there is less incentive for foreign investors to invest internationally,” she explained.
Izuora added that foreign participation would naturally return if the present administration’s policies stimulate economic growth and translate to growth for listed companies, which would boost investor confidence and expectations of competitive returns.