Forex Scarcity: Foreign Investors Shun Nigerian Companies

Forex scarcity is forcing foreign investors to reduce their level of transactions in the Nigerian stock market by -37.24% between January to July, falling behind the value of trades conducted by their domestic counterparts, which rose by 1.70% year-on-year.

According to a report by the capital market authority, Nigerian Exchange Limited, foreign portfolio investors traded N273.16 billion worth of company stocks in H1 2022 and first month of Q3 this year, below the N435 billion transacted during the same period last year.

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With foreign investors interest in Nigerian stocks dwindling, domestic investors increased their holdings to N1.490 trillion during the period under review, in contrast to the N1.465 trillion traded in the first seven months of 2021.

On a month-on-month basis, the report titled ‘Domestic and Foreign Portfolio Investment (FPI) July 2022’ disclosed that total transactions, including domestic and foreign transactions dip -35.36% to N101.18 billion (about $236.86 million) in July 2022, falling short of the N156.52 billion (about $371.53 million) reported in June 2022.

However, expanding the review period on a year-on-year performance shows that total trades grew 12.71% when July 2022’s N101.18 billion transactions are compared with the N89.77 billion worth of stocks exchanged during the same month last year.

Also, NGX reported domestic inflows and outflows closed July 2022 at N36.97 billion and N34.53 billion respectively, and foreign inflows and outflows reported N13.68 billion and N16 billion respectively.

The decline in foreign investment into the Nigerian stock exchange has been blamed on scarcity of foreign exchange, as foreigners have been having difficulty in repatriating their money from the Nigerian market.

A broader view of transactions in the stock market by domestic investors shows trade is down -58.80% in the last 15 years, from N3.556 trillion in 2007 to N1.465 trillion in 2021, crashing faster than the trades of foreign investors, which dropped by 29.38% to N435 billion from N616 billion. This is attributed to forex scarcity.

Meanwhile, last year transaction shows domestic investors accounted for 77% of total transactions recorded last year, while foreign transactions contributed about 23% during the same period.