Foreign investors offloaded approximately N355.74 billion worth of stocks on the Nigerian Exchange Limited (NGX) in the first eight months of 2024, according to data from the NGX.
The August Domestic & Foreign Portfolio Investment Report indicated that foreign outflows surpassed inflows by about N56.01 billion. During this period, total foreign transactions reached N655.47 billion, reflecting a substantial increase of 194.22% compared to N222.78 billion in the same timeframe last year.
The peak of foreign sell-offs occurred in April, amounting to N78.25 billion, followed by N69.41 billion in May and N43.94 billion in June.
David Adonri, a seasoned stockbroker and Vice Chairman of Highcap Securities Ltd, attributed the trend to the unstable naira and high interest rates, which are driving investors away from the equity market. He explained, “The equity market is influenced by many factors. The naira’s depreciation to around N1,700 impacts investor behavior. Many may choose to exit the market to convert their assets into stronger hard currencies, possibly returning when the currency stabilizes.”
Adonri also highlighted the effect of rising interest rates, stating that this often leads to a shift of financial assets away from the capital market. He noted the seasonal slowdown in market activity from September to November, typically characterized by a lack of major drivers such as full-year results or half-year dividends.
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Analysts at Meristem Research characterized the trend as capital flight, driven by the naira’s instability. They commented, “While the current high-yield environment may enhance investor sentiment and attract foreign portfolio investments in the short term, ongoing foreign exchange market volatility and persistent macroeconomic challenges could deter foreign direct investment inflows, posing risks to our near-term outlook for capital importation.”
The Central Bank of Nigeria has increased the benchmark interest rate five times this year, with a recent hike to 27.25% in September.
Since the COVID-19 pandemic, the Nigerian capital market has primarily been supported by domestic investors, with foreign participation dwindling. In August, both domestic and foreign investments in the equity market saw declines.
According to the NGX report, total transactions as of August 31, 2024, fell by 22.80% to N379.52 billion, down from N491.61 billion in July. Compared to August 2023, total transactions rose by 44.55% from N262.56 billion.
Total domestic transactions decreased by 25.81% month-on-month, from N434.09 billion in July to N322.05 billion in August 2024. Foreign transactions also experienced a slight decline of 0.09%, from N57.52 billion to N57.47 billion between July and August.
The National Bureau of Statistics’ capital importation report for the second quarter indicated that portfolio investments, which include equities, bonds, and money market instruments, accounted for about 10.37% ($106.85 million) of the total capital inflow of N1.03 billion.
Notably, investments in equities plummeted by 96.17% to N8.52 billion compared to the previous quarter, marking a 33.01% decline year-on-year. Conversely, the bond market saw considerable activity, with foreign investors injecting about N85.29 billion.
