Foreign investments in equities wane, amid uncertainty, forex issues

• Local patronage hits N1.7tr in 10months, foreigners trail with N349 billion
• Operators insist primary market still in comatose, urge govt to tackle impeding issues

Uncertainty in the nation’s political space, prolonged foreign exchange (forex) illiquidity and other macroeconomic challenges, exacerbated by the global economic issues have continued to depress foreign portfolio investors’ appetite in equities, as participation in the first 10 months of 2022 closed at N349.59 billion, lower than N1.730 trillion transactions recorded by domestic investors within the same period.

The October edition of the Nigerian Exchange (NGX) report on domestic and foreign portfolio participation in equities trading showed that total equities market transactions increased Year-to-Date as at October 30, 2022 by 34.59 per cent to N2.079 trillion with local investors’ patronage surpassing those by foreign investors.

Specifically, the domestic investors pulled transactions of N1.730 trillion, representing 83.19 per cent in the first 10 months of the year, while foreign investors transacted total equities worth of N349.59 billion, representing 16.81 per cent.

Analysis of domestic transactions showed that retail transactions hit N580.83 as against N494.87 billion in 10 months of 2021, while the institutional composition of the domestic market amounted to N1.149 trillion under the period review, higher than N720.34 billion in the comparable period of 2021.

Further breakdown showed that domestic institutional investors generated the highest transaction value, followed by domestic retail investors, and foreign portfolio investors’ contribution remained the least.

Capital market analysts noted that uncertainty in the yield environment and sustained foreign exchange (FX) illiquidity worsened foreign investors’ interest in the equities market.
Cordros Securities Limited said: “Still, the print is significantly below the 2022 average (N207.90 billion), reflecting the trifecta effects of higher yields in the fixed-income market, lingering FX liquidity constraints, and heightened global uncertainties. They predicted that domestic investors would continue to dominate market performance.”

However, the analysts argued that rising FI yields might constrain buying activities, as FPIs who have exhibited a lacklustre interest in domestic equities are likely to remain on the sidelines due to sustained forex liquidity challenges, global uncertainties, election concerns, and interest rate hikes by central banks in developed countries.

Also, FBNQuest said more details showed that domestic institutional investor participation outperformed its retail counterpart, describing the development as a well-established trend in the Nigerian market.

The research firm added: “Over H2, 2022, general market activity has been subdued due to risk-off sentiment ahead of the 2023 general elections and an uninspiring macroeconomic backdrop. Since the capital flight triggered by the pandemic, foreign participation is yet to attain pre-pandemic levels; this is due in part to legacy issues of FX liquidity amid the fragile macroeconomic landscape.”

Managing Director of Highcap Securities Limited, David Adonri, said the primary market for equities, which is tied to the fundamentals of the economy, has been comatose since 2015, while capital formation is paltry, due to weak macroeconomic fundamentals of the economy.

“The primary market segment is the essence of the capital market. It forms equity capital, which the Nigerian economy direly needs to create wealth and generate productive employment for youths.

He argued that for issuers to approach the market to raise capital, there must be some reasonable level of recovery in the economy to sustain the current bull-run.

He urged the federal government to restrategise and address current macroeconomic concerns, promote issues of national development, tackle prevailing stock market volatility, restore the market to sustainable rebound, and attract new issues to the nation’s bourse.

A stockbroker with Calyxt Securities Limited, Tunde Oyediran, said, “It is a good thing that domestic interest is building in the market; it is really positive. This is what we have been clamouring for, where the local investors will be the drivers of the market. With a level of activities demonstrated by the domestic participation will bring some sort of credibility and relative stability in the market.”