Nigerian Exchange cautiously optimistic that foreign portfolio investors will return

NIGERIAN Exchange officials are cautiously optimistic that foreign portfolio investors (PFI) are gradually regaining confidence on the economy and may soon start to return now that the worst of the coronavirus pandemic is over.

During the first four months of 2021, PFI investments in Nigeria, the main gauge of external sector confidence in the economy, fell by 41.57%. However, confidence among foreign investors is yet to return even after two consecutive quarters of positive gross domestic product (GDP) growth.

According to Nigerian Exchange figures on domestic and foreign portfolio participation in equity trading for April 2021, showed that the foreign investors have reduced their stakes to N178.25bn at end of April. This compares with N305.05bn invested in the corresponding period in 2020.

However, domestic investors raised their stake within the period by 46.11% to N658.21bn as against N450.48bn in the corresponding period of 2020 as a result of assets rotation by the locals from fixed income to equities. Investment analysts have attributed the weak confidence by FPIs to concerns around foreign exchange liquidity and the deterioration in the macro-environment.

While foreign reserves have been on the decline, Nigeria’s economy was pushed into recession in the second quarter of 2020. Analysts also pointed to the rising inflation as part of the challenges as Nigeria’s inflation rate rose for 19th consecutive month up till April 2021, with moderate reversal in May at 18.12%, according to the inflation figures of the National Bureau of Statistics (NBS).

Tunde Abioye, the head of  equity research at FBNQuest Merchant Bank, said: “It’s more of a case of apathy by offshore investors rather than increased participation by domestic investors. Concerns around foreign exchange liquidity and the deterioration in the macro-environment dampened the appetite of FPIs.

"The surge in domestic interest in equities towards the fourth quarter of 2020 was due to investors’ rotation out of fixed income securities as a result of the low yield environment.”

Research showed that while the foreign investors were down-sizing their investment, their local counterparts consistently raised their exposure. Distribution of foreign and domestic investors’ participation in equities showed that local investors accounted for  78.69% of the total transactions (N836.46bn) in the four months of the year, while the FPIs accounted for 21.31%.