Domestic investors hold sway in equities as foreign stake stabilises

Though recent report shows foreign transactions in Nigeria’s equities have risen month-on-month (MoM) since May, but domestic investors are still largely in control.

The report on domestic and foreign portfolio participation in equity trading show that year-to-date (YtD), domestic investors account for 90 percent of Nigeria’s equities transactions while foreign investors account for only 10 percent.

Total equities transactions in the first half (H1) of 2023 worth N1.451trillion (H1’2022: N1.662trillion), out of which N1.306trillion (H1’2022: N 1.418trillion) was by domestic investors while N145.08billion (H1’2022: N243.48billion) was by foreign portfolio investors.

While foreign transactions are seen stabilising midway into the year, their transactions in Nigeria’s stocks still tilt more to outflow than inflow.

In May when the market first saw an uptick of foreign transactions this year, foreign inflow was N27.51billion while foreign outflow was N9.65billion. In June, while foreign inflow was N22.72billion, outflow was N23.02billion.

Further details show that out of the record N145.08billion worth of transactions by foreign investors in H1 of 2023, foreign inflow was N 72.02billion while foreign outflow was N73.06billion.

After declining from N 9.19billion in March to N8.47billion in April, foreign transactions increased to N37.16billion in May and N45.74billion in June.

In their recent note titled “Will foreign portfolio investors return?”, Lagos-based Coronation analysts say that it is unlikely that foreign portfolio investors will come back remarkably.

“With the NGX All-Share Index up 26.8percent year-to-date, and key reforms on fuel subsidy and foreign exchange enacted, will the foreign portfolio investor stage a return?

“Our view is that, following many disappointments in the equity market and a significant rearrangement of US and Nigerian market interest rates over the past two years, it is unlikely that foreign portfolio investors will come back in a meaningful way, at least not for the rest of this year,” they noted.

While explaining their views, they noted “Foreign participation in the Nigerian equity markets used to run at high levels, sometimes accounting for 50percent of turnover.

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“But that was long ago. Successive years of negative equity market performance (2014, 2015 and 2016, followed by 2018 and 2019) were discouraging, to say the least. Problems with repatriation of dividends and principal, notably in 2016 and again in 2020, were also off-putting.

“Though the NGX Exchange All-Share Index recorded three straight years of positive returns in 2020, 2021 and 2022, the share of foreign investors in trading fell during this period.

“This is not to say that the foreign investor is absent from the equity market. Foreign participation jumped by 84percent from January to June this year, but relative to overall turnover it only kept pace,” the analysts added.

“Year-to-date it has accounted for some 10percent of the market. Following many changes in the foreign exchange and interest rate environments and following many disappointments in the equity market (and despite the last three years’ performance), we doubt that the foreign portfolio investors will return in force, and we do not expect this to change between now and the end of the year,” Coronation analysts said.