Decreasing participation in Nigerian equities reflects the story of the economy at large

The Nigerian Exchange Group in its latest domestic and foreign investment report for May 2022 indicated that total transactions on the local bourse grew by a whooping195.1% m/m to NGN607.5bn in May reflecting the continued exit of foreign portfolio investors.

According to analysts at FBNQuest, “these numbers also imply a y/y growth of 525%. Detailing domestic and foreign interests, domestic participation in the Nigerian equities market remained dominant at 92.5% in May alone ( and c.87% ytd).”

According to a report Tuesday, the analysts said, “foreign investors accounted for the balance of 7.5%. Investors’ participation outcome in the month of May bucked the trend witnessed so far. In the four months leading up to April 2022, foreign investor participation was an average of c.18%, only to drop to 7.5% in May.”

On a ytd (to May) basis, total market transaction amounted to NGN1.5trn compared to in the corresponding period last year.

The significant growth in ytd transactions was mainly as a result of a 525% y/y growth in transaction value in May, due to significantly higher domestic institutional participation; domestic institutional participation grew by over 300% m/m.

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Considering foreign inflows in comparison to outflows, ytd, foreign inflows amounted toNGN96bn as against an outflow of NGN105bn.

The report said, “foreign portfolio investors have largely exited Nigeria due to issues with fx liquidity which has led to a backlog of delayed external payments, estimated at c.USD1.7bn by the World Bank.”

Foreign investors have continued to flee from Nigeria on account of the unfriendly investment climate in Africa’s biggest economy and there is no better reflection of this than in the record of FDI flows to Nigeria which dropped from over $4bn in 2015 to a mere $600m in 2021.

For domestic investors, total inflow amounted to NGN278bn against an outflow of NGN285bn.

Domestic institutional investors remain the most dominant players. Year to date, domestic institutions’ involvement amounts to a transaction value of NGN896bn against retail’s NGN408bn, implying a y/y growth of 106%.

Historically, domestic transactions decreased by 58.80% from NGN3.6trn in 2007 to NGN1.5trn in 2021

Similarly, foreign transactions also decreased by 29.38% from NGN616bn to NGN435bn over the same period.

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