Foreign portfolio investment (FPI) outflows increased by 237% in the first quarter of 2024 compared to the same time in 2023.
Data on foreign portfolio investments, released by the NGX research department, shows that outflows more than tripled, indicating increased market reactions in the wake of recent changes by the Central Bank of Nigeria (CBN).
More than three times as much money was taken out in Q1 2024 (N119.81 billion) as was taken out in Q1 2023 (N35.59 billion).
Nonetheless, Q1 2024’s overall foreign inflow (N93.37 billion) exceeded Q1 2023’s (N18.12 billion) by a factor of five.
The data for the first quarter of 2024 also demonstrated a notable discrepancy between international portfolio inflows and outflows from Nigeria’s equities market.
Concerns about investor confidence and market stability were highlighted by the clear trend of outflows outpacing inflows in the total foreign portfolio participation in equity trading.
Overall, N93.37 billion in foreign inflows and N119.81 billion in outflows were recorded in the first quarter of 2024. The quarter’s net outflow of N26.44 billion highlighted a pattern in which foreign investors are withdrawing more money from the Nigerian equities market than they are bringing in.
Monthly Analyses
- Foreign portfolio investments exhibited a large imbalance between inflows and outflows in January 2024, with outflows from abroad more than tripling in value to N37.33 billion from N15.78 billion in inflows. In contrast, N9.84 billion came in and N15.06 billion went out in January 2023. This signifies a 147.8% rise in outflows and a 60.3% increase in inflows for January compared to the previous year. January 2024 saw a net outflow of N21.55 billion, which established the pattern for the months that followed.
- Foreign inflows totaled N40.88 billion in February 2024, while outflows were reported at N24.93 billion. On the other hand, N3.68 billion came in and N15.94 billion went out in February 2023. This suggests that February saw a notable increase in inflows of 577.7% and outflows of 156.4%. The difference between entering and exiting investments was further widened in February 2024, when the net outflow was recorded at N15.95 billion.
- The quarter’s largest inflow was N52.66 billion in March 2024, while significant withdrawals totaled N41.60 billion. There was a notable rise of 1044.8% in inflows and 806.3% in outflows from March 2023, when there was an inflow of N4.60 billion and an outflow of N4.59 billion. With a net inflow of N11.06 billion, this was the only month throughout the quarter that had a positive balance.
Implications of increased outflows
The notable increase in overseas portfolio withdrawals in Q1 2024 coincided with CBN reforms and probably has a number of ramifications. First off, the rise in outflows can be a sign that foreign investors are losing faith in the Nigerian market. This can be the result of concerns about perceived dangers, doubts about the reforms, or hopes for higher returns elsewhere.
When foreign investors convert their holdings to other currencies, the demand for those currencies will rise compared to the value of the Nigerian naira, which could lead to the depreciation of the currency.
Increased outflows may also cause the Nigerian financial markets to become less liquid, which might raise borrowing prices and possibly impede economic growth if companies find it harder to get financing.
Furthermore, a decrease in stock prices may result from foreign investors selling off their holdings due to increased outflows. For local investors, this may mean a smaller market capitalization and lower investment returns.
Significant outflows may indicate more serious economic problems that could impede global economic expansion. Diminished foreign investment may translate into less corporate capital, which would result in lower investment and slower economic growth.
CBN’s Point of View
It is typical for investors to come and depart, according to remarks made by CBN governor Yemi Cardoso after the 294th meeting of the Monetary Policy Committee (MPC).
The governor of CBN stated: “As indeed with any market, there is free entry and free exit. That is what you will expect in any market. Whether it is a foreign exchange or the stock market, this is how it works. What we have seen is that portfolio investors do come in and at a certain level, they go out again. I know of some that have come in, gone out and are coming back again. That is how we normally expect those markets to function.”
Additionally, he stated that to learn what foreign investors want from the market and implement any required reforms—like assuring greater transparency—the apex bank has spoken with them.
Cardoso went on to say that the goal of eliminating the FX backlog was to boost investor confidence in the nation. He reiterated that the Nigerian market is currently seeing a resurgence of sustained confidence.
He added that investors’ confidence is increased by the recent upgrades in ratings from organizations like Fitch.
