FX liquidity: Foreign portfolio investment up 168% to N118.92 

Foreign portfolio investment, FPI, into the stock market rose Year-on-Year (YoY) by 167.8 percent in February 2024 on the backdrop of price stability in the foreign exchange (FX) market owing to strengthening of the Naira against the dollar.

Specifically, the total foreign portfolio investment into the market rose to N118.92 billion in February 2024 from N44.52 billion in the corresponding period in 2023.

The Nigerian Exchange Limited (NGX)’s Domestic and Foreign Portfolio Investment report for February 2024 shows that FPI represents 11.78 percent of the total equities transaction (N1.009trn) during the period, a 0.3 percentage point increase compared to 11.48 percent FPI contribution in the same period in 2023.

Similarly, the foreign investors’ stake rose Month-on-Month (MoM) by 23.9 percent to N65.81 billion from N53.11 billion between January and February 2024.

Also the foreign portfolio investors’ contribution to the total equities transaction rose to 18.39 percent from 8.15 percent between January and February 2024.

Further analysis shows that Year-to-Date, YtD, FPI inflow at N40.71 billion, represents 37.9 percent of the total foreign investors’ commitment, while outflow at N78.21 billion, represents 62.1 percent of the foreign portfolio investment.

Investment analysts had indicated that stability in the foreign exchange market would result in improved FPI inflow.

David Adonri, Vice Chairman, Highcap Securities, had said that if the Central bank of Nigeria (CBN) will sustain the remittance of trapped funds to foreign investors, it would encourage them to come back to the market.

He said: “Foreign investors’ confidence was seriously eroded by their trapped funds in Nigeria. Many of them have consequently been inactive for the past few years.

“Since this administration has made it a cardinal objective to clear the outstanding remittances, there is a silver lining for FPIs that can encourage their return. If CBN sustains the remittance of trapped funds to foreign investors, more FPI may start flowing in this year and henceforth.

“Foreign investors will invest where they can move their capital in and out without hindrance. If the profitability, liquidity and safety of investment in Nigeria are assured and country risk is negligible, FPI will flow in.

Oluwaseun Dosumu, Head of Research, Parthian Securities, said: “The resurgence of foreign investors in the Nigerian market is contingent upon the policies and dynamics of the foreign exchange market in 2024. The preceding year, 2023, witnessed a weakened state of exchange rate fundamentals within the Nigerian forex market, primarily attributed to a decline in foreign exchange supply.

“With the anticipation of an enhancement in supply during the year, there is a potential for a modest upturn in foreign portfolio investment in the Nigerian Exchange.”

Victor Chiazor, Head of Research at FSL Securities, said: “The low foreign portfolio participation in the equities market increased since the drop in Economic activities and investors found it difficult to repatriate their capital given the lack of foreign exchange. Foreign investors will continue to sit on the sidelines until their fears around free entry and exit of capital is assured.

“As we speak,  the country continues to struggle with attracting foreign exchange and the government has also continued to struggle in its bid to meet the foreign exchange demand as most investors still have their funds trapped within the Nigerian market.

“However, we expect inflows from foreign investors to gradually improve in the new year as the impact of recent government policies begin to take effect. Also, savings from FX used to import PMS are expected to boost the country’s foreign reserves. While we expect improvement around export proceeds outside of oil to support FX supply.

“On the back of a stronger foreign reserve and transparency around capital importation and repatriation, we expect more inflows into the equities market in the new year.”