Foreign Portfolio Investors (FPI) have continued to scale down their equities’ stake on the backdrop of the lingering Foreign Exchange (FX) crisis in the country with the figure falling Year-on-Year (Y-on-Y) by 32.7 percent as at October, 2022.
This is even as financial analysts at EFG Hermes have said that the government needs to address the FX challenges for a sustainable equities rally and increased foreign investors’ participation in the market.
Latest data on the Domestic and Foreign Investors participation in the stock market showed that their investment fell to N28.55 billion during the period from N42.42 billion in the corresponding period in 2021.
Also, foreign inflow slowed by 13.2 percent to N18.16 billion from N20.91 billion in the corresponding period in 2021.
Speaking at the EFG Hermes virtual Media Roundtable, Simon Kitchen, Managing Director/Head of Strategy at EFG Hermes Research, noted that foreign investors are dis-satisfied with the FX condition, saying that the FX shortage is not just a problem for foreign stock investors, but it disrupts the whole economy.
He emphasized the need to change the incentive for local pension fund administrators to encourage them to invest more.
“Flows to Frontier markets (FM) funds are returning after a rough few years. November saw the biggest inflow since 2018 and more coming in early December. However, Nigeria and Kenya, which account for over 10 percent of the frontier markets index have not seen any substantial inflow.
“Foreigners are unhappy with FX conditions; It has been hard to get money out of Nigeria since 2020. If you can’t get money out, why put money in. It is critically important that the authorities tackle the FX issues.”
He explained that the recent rally seen in the equities market is because people are chasing yield. “We need to see fundamental changes in the way the economy is run,” he said.
Mato Mukuru, Managing Director/Head of Frontier Markets Research, EFG Hermes, speaking said: “The rally we have seen in the equities market justifies the fact that it is a very low base effect. We have a very discounted valuation when it comes to Nigerian equities, but what we have seen is not indicative of a sustainable movement.
“There hasn’t been a strong resurgence in the market. So far, the international investors are still not there”.