Foreign portfolio transactions in the Nigerian markets declined by N178.66billion to N510.25 billion by third quarter 2020 as foreign investors continued selloff amid concerns over foreign exchange control, illiquidity and other macroeconomic risks.
Latest foreign portfolio investment (FPI) report obtained at the weekend showed that total foreign portfolio transactions dropped by 25.93 per cent from N688.91 per cent in third quarter 2019 to N510.25 billion in third quarter 2020.
The report also showed significant increase in selloff by foreign investors in 2020, with net portfolio deficit widening from –N36.91 billion in third quarter 2019 to -N159.63 billion in third quarter 2020. With nearly two out of every deals in 2020 on the sell side, foreign portfolio outflows or sales stood at N334.94 billion as against inflows of N175.31 billion in third quarter 2020. Outflows and inflows had stood at N362.91 billion and N326.0 billion respectively.
The FPI report is coordinated by the Nigerian Stock Exchange (NSE) and it includes transactions from nearly all custodians and capital market operators. It is widely regarded as a credible measure of FPI trend. The report uses two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy. Total FPIs included both inflows and outflows. While inflows and outflows indicate direction of portfolio transactions, total FPI measures the momentum and level of participation.
The report showed a slowdown in the percentage contribution of foreign investors to activities at the Nigerian investment markets. FPI accounted for 38.19 per cent of total transactions for the nine-month period ended September 30, 2020 compared to 47.04 per cent in comparable period of 2019. Meanwhile, the proportion of domestic investors’ trades improved from 52.95 per cent in third quarter 2019 to 61.81 per cent in third quarter 2020.
Month-on-month analysis showed that total FPI increased to N40.5 billion in September 2020, driven by a surge in outflows to N26.05 billion while inflows declined to N14 billion. Total FPI stood at N38.98 billion in August 2020, with inflows and outflows amounting to N17.66 billion and N21.32 billion respectively.
FPIs had dropped to a new low in July 2020, after hitting a 29-month low in May 2020. Total FPIs dropped from its previous low of N35.24 billion in May 2020 to a new low of N34.59 billion or $89 million in July 2020, reversing the dead cat bounce of N56.3 billion or $90.89 million in June 2020.
FPI inflows increased from N13.70 billion in July 2020 to N17.66 billion in August 2020 while outflows also increased from N20.89 billion to N21.32 billion.
Investment analysts have blamed the continuing decline in foreign investments, especially the selloff, to foreign exchange illiquidity orchestrated by Central Bank of Nigeria (CBN)’s capital controls programme.
Afrinvest Securities said the introduction of capital controls amid foreign exchange illiquidity had left foreign investors stuck in the market and made Nigeria less attractive as an investment destination.
“The wide premium between exchange rates at the parallel market and the Investors & Exporters ( I & E) window also suggests a mispricing of the currency, which makes investors and businesses reluctant to bring in capital,” Afrinvest stated.
Earlier, the six-month half-year report had shown that for every naira invested, foreign portfolio investors took out two naira in the first half of this year. Foreign portfolio outflows had risen to N266.68 billion in first half of 2020 as against inflows of N129.95 billion, representing a net FPI deficit of N136.7 billion. The deficits of N136.7 billion in first half 2020 represented 31.1 per cent increase on N104.29 billion recorded for the whole of 2019.
Total FPIs for the six-month period ended June 30, 2020 stood at N396.63 billion. Total FPIs during the first half of 2019 had stood at N472.78 billion with outflows and inflows at N257.81 billion and N214.97 billion respectively.
Total FPIs for the seven-month period ended July 31, 2020 dropped to N431.22 billion with outflows and inflows of N287.57 billion and N143.65 billion respectively, compared with total FPIs of N530.57 billion, including outflows and inflows of N287.22 billion and N243.35 billion, recorded in comparable period of 2019.