ACCORDING to a report from the Nigerian Exchange (NGX) on domestic and foreign portfolio participation for the month of March 2022, foreign portfolio investors have left a larger chunk of the Nigerian stock market to locals.
The risk of investing in Nigerian financial markets has been found to be higher than the corresponding return, resulting in portfolios with unbalanced risk-return ratios.
The latest report shows that substantial foreign currencies were withdrawn out of Nigeria in March, resulting in a rise in foreign portfolio outflows. This occurred shortly after the market experienced a significant drop in foreign inflows.
In Nigeria’s debt capital market, where inflation pressure has kept real return on investment negative, a similar tendency has been observed.
According to trading data, total stocks market transactions climbed by 0.93 percent to N185.26 billion in March 2022 from N183.56 billion in February 2022.
Foreign investors’ tantrums have been ‘get me out of Nigeria markets’ as a result of dollar scarcity and a large FX backlog.
Cowry Asset Management said in a study that overall transactions declined by 18.92 percent in the last 12-month when compared to March 2021, citing details from the report.
Total domestic transactions climbed by 3.59 percent to N143.09 billion in March 2022 from N138.13 billion in February 2022, according to further study.
However, overall foreign transactions fell 7.17 percent to N42.17 billion in March 2022, down from N45.43 billion in February 2022.
“The decrease in the total transaction was chiefly due to the very weak appetite of foreign portfolio investors (FPIs) which continue to decrease amid sustained fear of foreign exchange volatility eroding their returns on investment and insecurity currently being encountered in the country”.
Based on Cowry Asset’s analysis, foreign investors appeared to have reservations about the Naira not being appropriately priced against the greenback.
Local investors, on the other hand, appear to be accumulating additional shares of several fundamentally good businesses during the first quarter of the fiscal year 2022 earnings season.
“We saw local players’ participation in the equities market increased in March than in February 2022”. Further breakdown showed that domestic institutional investors outperformed retail investors by 16%.
However, based on a monthly comparison of domestic sales retail transactions declined by 1.27 percent to N60.61 billion in March 2022 from N61.39 billion in February 2022.
Meanwhile, the institutional composition of the domestic market climbed by 7.48 percent during the same period, from N76.74 billion in February 2022 to N82.48 billion in March 2022.
Domestic investors contributed 77.24 percent of total transactions in 2021, while foreign investors contributed 22.73 percent in the same period. In 2022, domestic transactions totaled N563.29 billion, while foreign investors contributed N129.01 billion.
According to researchers, the ratio of total domestic transactions to total foreign transactions remained 77:23 at the end of March 2022.
A more detailed analysis of the FPI transactions (from N20.86 billion) showed that Foreign portfolio inflows decreased to N16.37 billion. While Foreign portfolio outflows, climbed to N25.80 billion in March from N24.57 billion in February 2022.
Local investors, according to Cowry Asset Management experts, have grown their position in the stock market, with purchases totaling N76.08 billion, compared to N67.01 billion in outflows.
Despite the announcement of the audited 2021 financial figures, the equity market remained positive in the first quarter of the year. Inspite of the fact that foreign portfolio investors’ participation was declining.
“We expect that going forward the performance of the local bourse would chiefly depend on the perceived level of risk in the political space as well as the performance of companies in Q1 2022”, Cowry Asset analysts stated.
Analysts at Cordros Capital stated that domestic investors will continue to dominate market performance in the short to medium term, while buying activity will be restricted by forecasts of an increase in FI yields amid election-related uncertainty.
They also stated that FPIs who have shown a lackluster interest in local equities are expected to remain on the sidelines as a result of ongoing FX liquidity issues and central bank interest rate hikes in advanced countries.
