Foreign portfolio investors have continued to reduce exposure in Nigerian equities with transactions reaching the lowest levels in five years in the month of November, according to data released by the Nigerian Stock Exchange, showing the participation between local and foreign investors
Africa’s biggest economy is battling to meet a backlog of unmet dollar demand, caused by the decline in oil prices, occasioned by the pandemic, and deterring fresh inflows after investors struggle to repatriate their already trapped funds.
The market rallied some 50 percent last year, closing as the world’s best performer. But that’s largely driven by domestic investors who have flooded into the market in search of returns that are higher than Nigeria’s prevailing inflation; while foreigners stayed- off until some clarity in the management of foreign exchange is seen.
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As a percentage of the total transaction, foreigners accounted for only 21.8 percent in November, the lowest since 2015, and down from the 33.37 percent they did in October. On the other hand, transactions from domestic investors reached an all time high of 78.82 percent.
Analysts say the reason for dampened investors interest is because foreigners are not encouraged to make investments due to the challenges surrounding forex, as their funds are stuck and cannot be liquidated easily, however, if the dollar is stabilized and is not scarce things may take a turn around.
Nigerian equities have largely benefitted from the low yield seen in the fixed-income instruments, as local investor’s poured liquidity into the market after being banned from investing in OMO bills.
In 2020, foreign investors took flight owning to the complications arising from the impact of the Coronavirus pandemic including the drop in oil prices and economic meltdowns, as well as the issues surrounding foreign exchange in the country and from January to November, the foreign investors withdrew a total of N433.15 billion from the stock market while inflows hit N226.13 billion.
Activities of domestic investors has prompted a surge in investment performance as trading transactions grew by 84 percent to N317.81 billion in November 2020 as against the N172.52 billion achieved in the same period of 2019, in addition the total transaction in the month under review was the highest during the year and was represented a 29.77 percent increase from the N244.90 billion traded in October.
The improvement in recorded transactions was primarily driven by domestic investors who contributed N250.50 billion ( 78.82 percent) while the foreign investors contributed N67.31 billion ( 21.18 percent) according to the recent Domestic and Foreign Por t f o l i o investment report compiled by the NSE
On the domestic front, transactions in November 2020 were dominated by institutional investors who traded N144.12 billion while retail investors executed transactions worth N106.38 billion. Furthermore, the volume of transactions among retail and institutional investors grew by 52.10 percent and 54.57 percent respectively in the month under review.
