Portfolio Investment in Equity, Bonds Plunge to $617.2m on FX Scarcity

Kayode Tokede

Amid political uncertainty and double-dight inflation rate, portfolio investment in equity and bond markets dropped to $617.2million in second quarter (Q2) of 2023 from $676.6 million in corresponding second quarter of 2022.

This is according to the National Bureau of Statistics (NBS) latest report on Nigeria’s capital importation in Q2 2023.

The uncertainty leading to the 2023 general elections orchestrated foreign investors shunning   Nigeria’s market in the period under review but confidence was restored towards June 2023 ending when President Bola Tinubu-led administration announced unification of foreign exchange and fuel subsidy removal.

According to NBS, Inflation rate increased to 22.79 per cent as of June 2023 from 18.6 per cent June 2022, another factor that discouraged portfolio iinvestment.

NBS disclosed that portfolio investment in equity dropped to $8.52 million in Q2 2023 from $12.72 million in Q2 2022, while exposure in bond market stood at $85.29 million in Q2 2023 from $322.04 million in Q2 2022.

In total, portfolio investment between Q1 and Q2 2023 in the equity market stood at $230.83million as against $44.5million between Q1 and Q2 2022.

In the bond market, portfolio investment exposure stood at $386.37million between Q1 and Q2 2023 from $632.1million in corresponding period of 2022.

The report by NBS, further disclosed that Foreign Direct Investment (FDI) in equity and bond markets also dropped to $ 267.24million between Q1 and Q2 2023 from $599.26million in corresponding period of 2022.

FDI’s exposure in equity stood at $133.63 million Q1 and Q2 2023, representing a decline of 56 per cent from $ 302.13million reported in Q1/Q2 2022.

The NBS report disclosed that total capital importation into Nigeria stood at $1.03 billion in Q2 2023, lower than $1.54 billion recorded in Q2 2022, indicating a decrease of 32.90per cent.

The report added, “Other Investment ranked top accounting for 81.28 per cent or $837.34 million of total capital importation in Q2 2023, followed by Portfolio Investment with 10.37 per cent or  $106.85 million and FDI with 8.35 per cent or $86.03 million.”   

In a desperate attempt to tame the growing inflation rate, the CBN had raised the MPR to 18.75 per cent from per cent, and the world economy, according to the World Bank may be edging towards a global recession and a string of financial crises in emerging market and developing economies in 2023.

On the backdrop of unification of Naira, impressive corporate earnings by some key companies, and low yield in the fixed-income market, among other factors, the stock market segment of the NGX has gained over 29 per cent in nine months of 2023 and is highly dominated by domestic investors that comprises of retail domestic/ institutional investors.

Capital market analysts have expressed that the MPR increase, uncertainty towards the 2023 political elections, inflation rate, and most especially the scarcity of foreign exchange have contributed to the decline in portfolio investment in equity and bond markets.

Commenting, the CEO Wyoming Capital and Partners, Mr Tajudeen Olayinka noted,  “The only explanation for that is the disappointing exchange rate misalignment in Nigeria and the need to limit possible exposure to foreign exchange risk.”

He added that solution to the problem lies in unifying the exchange rate regime and allowing foreign exchange market to function.

On his part, the Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion also highlighted that foreign exchange market challenges, 2023 election fear and rising interest rates weaken foreign portfolio investments in Nigerian stock market.

Speaking, the Vice President of Highcap Securities, Mr. David Adnori attributed the foreign investors’ decline in the equity market and bond market to foreign exchange scarcity, stating that domestic investors have increased their holding in some listed fundamental stocks on the Exchange.

According to him, “Those in the portfolio investment were not investing in Nigeria’s equity and bond markets during the period but confidence restored amid Naira unification.

“If you consider the debt area, a lot of foreign investors usually invest in Nigeria’s public debt. As it is now, a lot of them have stayed away over looming fear that the government may not be able to service those debts,” he explained.

He further said, “With more foreign investors, you will have more foreign currencies in an economy. What is happening now is that our macro economy has been mismanaged by the debt crisis. The federal government needs new debts to service existing debts. It is a worrisome situation for portfolio investors and it is contributing to their exit from both markets.”