Foreign participation in the Nigerian stock market dropped by 31 per cent in the past 10 years, highlighting the negative impact of the currency crisis on the market.

Data from the Nigeria Exchange Limited (NGX) also indicated that total domestic transactions, which stood at N107 billion as at June 2014, rose to N272 billion in the last month, representing 154 per cent increase.

In the period, total foreign transactions declined from N118 billion to N82 billion within the same period.

Also, total foreign inflow into the market, which stood at N69 billion in 2014 fell by 44 per cent to close at N39 billion in June.

Before the previous administration, foreign investors dominated the market.

For instance, as at 2014, foreigners accounted for 52 per cent of market transactions while retail participation was 48 per cent.

However, foreign investors’ activities on the local bourse have continued to wane over the past 10 years as they control less than 25 per cent of total transactions on the NGX on the back of weak incentives, rising insecurity and weak market internals.

This has led to the dominance of local counterparts in terms of transaction volume.
Analysts said besides the FX crisis, the exit of multinationals from the exchange and Nigerian market is also a major contributing factor to foreigners’ apathy in the market.

Head of Research, FSL Securities, Victor Chiazor, said the drop in foreign transactions on the Nigerian Exchange in the last few years was large as a result of the weakening of the local economy.

According to him, the series of naira depreciation, negative GDP growth, weak performance of the equities market, low foreign reserves and policy inconsistencies amongst other issues all heightened slow capital flows into the capital market.

He argued that although there is an increase in domestic participation in the market, which helped stabilise the market a decent balance of foreign and domestic players is required for a vibrant market, given the structure of the market.

To see higher inflows into the market, he said, the fiscal and monetary authorities will play a major role, especially in the area of stabilisation of the naira.

He also suggested that the ease of entry and exit of capital must be enforced, while the performance of stocks listed on the equities market must improve to reward investors in the market.

Research Analyst at Cowry Asset Management Limited, Charles Abuede, said the decline in foreign transactions and inflows is a response to various risk factors and challenges within the Nigerian market and economy at large.
He added that the incoherent exchange rate policies have remained a disincentive to foreign investors.

Chief Research Officer of Investdata Consulting, Ambrose Omordion, said foreigners’ exit has brought some level of stability in the market, adding that their massive dumping of shares created a lot of downturn in the market before now.