Foreign investor participation in Nigeria’s equities dips 21% YTD

Foreign portfolio participation at Nigeria's local equity market has witnessed a significant dip year to date, dropping to 21.34 percent from the 37.44 percent recorded in 2020. On the flip side, domestic investors have been actively participating in the market, with a strong showing of 78 percent compared to 62.5 percent in the previous year. The major drivers behind this shift were discussed by Afolabi Oriyomi, Senior Research Analyst at PFI Capital, during an interview on CNBC Africa. According to Oriyomi, foreign investors faced challenges in repatriating their funds due to foreign exchange (FX) challenges. However, beyond this issue, there are other significant reasons for the pullback by foreign portfolio investors. One major concern is the high level of risk and uncertainty in the country, exacerbated by rising insecurity. The prevailing security challenges have heightened the perception of risk and uncertainty among foreign investors, making it challenging for them to commit funds to the Nigerian market. Additionally, factors like high inflation rates and exchange rate instability have added to the apprehension of foreign investors. Oriyomi highlighted the role of the Central Bank of Nigeria (CBN) in stabilizing the exchange rate to curb excessive speculation by investors. While the short-term measures have brought about some stability, addressing the structural issues impacting the economy is essential for sustainable growth in the long run. On the domestic front, Oriyomi pointed out that domestic investors have been inclined towards money market instruments, seeking safety amid the prevailing uncertainty. With over 80 percent of funds channeled into money market instruments and around 10 percent into bonds, equities have received less attention due to their volatility. However, there has been a recent increase in funds flowing into the equity market, driven by improved market performance. The Nigerian equity market has yielded a positive return of approximately 7 percent to investors so far this year. Looking ahead, Oriyomi expressed optimism about the market's prospects, expecting further improvement in the year-to-date performance. Factors like ongoing disinflation efforts since March 2021, consistent GDP recovery, and the anticipation of positive financial results by the year-end are likely to drive the market's growth. Investors are positioning themselves to capitalize on the forthcoming financial reports and earnings. In conclusion, the Nigerian equity market continues to navigate through challenges posed by FPI pullback, domestic investor preferences, and market uncertainties. While foreign investors grapple with external factors impacting their investment decisions, domestic investors are cautiously optimistic and are gradually increasing their exposure to the equity market. The outlook for the Nigerian equity market remains positive, with potential catalysts on the horizon for sustained growth and performance.