Foreign Participation in the Stock Market Drops by 31%

Foreign involvement in Nigeria’s stock market has declined by 31% over the last decade, underlining the sector’s negative impact from the currency crisis.

The total amount of domestic transactions, which was N107 billion in June 2014, increased to N272 billion in the most recent month, a 154% increase, according to data from the Nigeria Exchange Limited (NGX).

The overall amount of international transactions during that time decreased from N118 billion to N82 billion. Additionally, the market’s overall foreign inflow dropped by 44% to finish at N39 billion in June from N69 billion in 2014. 

The market was dominated by foreign investors prior to the previous administration. For example, as of 2014, 52% of market transactions were made by foreigners, and 48% were made by retail participants.

However, due to inadequate incentives, growing insecurity, and weak market internals, foreign investors’ activity on the local exchange has continued to decline over the past ten years, accounting for less than 25% of all transactions on the NGX.

As a result, local counterparts now account for the majority of transactions. According to analysts, the departure of multinational corporations from the Nigerian market and exchange is a significant element in the indifference of foreign investors in the market, in addition to the FX problem.

Victor Chiazor, Head of Research at FSL Securities, explained that the local economy’s decline in recent years has led to a significant decline in international transactions on the Nigerian Exchange.

He claimed that several factors, including the devaluation of the naira, the GDP’s negative growth, the stock market’s poor performance, low foreign reserves, and inconsistent policies, all contributed to the capital market’s sluggish capital flows.

Even though domestic market involvement has increased, which has contributed to market stabilization, he maintained that given the market’s structure, a healthy mix of domestic and international companies is necessary for a thriving market. 

He stated that the monetary and fiscal authorities would be crucial in bringing in more capital, particularly in the area of naira stabilization.

To reward investors in the market, he also recommended that capital entry and exit procedures be made easier and that the performance of stocks listed on the equities market be improved.

Charles Abuede, a research analyst at Cowry Asset Management Limited, stated that the drop in foreign inflows and transactions is a reaction to several risk factors and difficulties facing the Nigerian market and economy as a whole.

He continued by saying that international investors are still discouraged by the inconsistent exchange rate policies. Ambrose Omordion, chief research officer of Investdata Consulting, stated that the withdrawal of foreign investors has somewhat stabilized the market. He also noted that the market had experienced significant declines before this because of their extensive share dumps.