Domestic, Foreign Portfolios Investors Push Stock Market Tansactions to N4.9trn YoY

Kayode Tokede  

Foreign and domestic portfolios investors transactions in the stock market of the Nigerian Exchange Limited stood at N4.9 trillion in 11 months, nearly 52 per cent Year-on-Year (YoY)increase from N3.23 trillion reported in 11 months of 2023. 

The latest ‘domestic & foreign portfolio participation in equity trading’ in 11 months of 2024 showed that foreign portfolio investors are showing stronger appetite for local assets with Foreign Portfolio Investment (FPI) transactions at N785.28 billion as against N362.75 billion in corresponding 11 months of 2023. 

Official trading report at the weekend showed that FPI’s transactions in 11 months have reduced domestic investors dominance of the stock market, contributing 15.98 per cent against 84.02 per cent contribution by domestic investors. 

According to the report, FPI inflow in 11 months of 2024 nearly tripled, as most foreign investors continue to benefit from the Central Bank of Nigeria (CBN) reforms in the foreign exchange market and cheap prices of most blue-chip companies quoted on the NGX. 

The report by NGX showed that FPI inflow stood at N370.15 billion in 11 months of 2024 from N157.32 billion in 11 months of 2023. 

On the other hand, foreign portfolio outflows, the sell side of the transactions, increased to N415.13 billion, about 102.09per cent increase over N205.43 billion reported in 11 months of 2023. 

However, the weak FPI inflows and decreased domestic demand plummets total transactions at the NGX in November 2024 to N442.34 billion from N502.73 billion reported in October 2024. 

The report, however, disclosed that domestic transactions totalled N4.13 trillion within the 11months period,  43.77 per cent above N2.87 trillion recorded in the comparable period of 2023. 

The FPI report, coordinated by the NGX, included transactions from nearly all custodians and capital market operators and it is widely regarded as a credible measure of foreign portfolio trend.

The November 2024 performance set a new record above the market’s third quarter performance. Total transactions at the stock market had risen to N3.97 trillion in the first nine months of this year, the highest third quarter turnover according to available official records of the market.

The third quarter 2024 performance represented a new record against the market’s turnover in third quarter 2023, when the market had set a high of N2.71 trillion. The closest records were in 2018 and 2014 when the market recorded N2.01 trillion and N2.04 trillion respectively.

In terms of performance of the market over the last decade, the report disclosed that,  “Over a 17 year period, domestic transactions decreased by 10.94per cent from N3.556 trillion in 2007 to N3.167 trillion in 2023; whilst foreign transactions also decreased by 33.28 per cent from N616 billion to N411 billion over the same period.

“Total domestic transactions accounted for about 89per cent of the total transactions carried out in 2023, whilst foreign transactions accounted for about 11per cent of the total transactions in the same period. The transaction data for 2024 shows that total domestic transactions are circa N4.128 trillion, whilst total foreign transactions are circa N785.28 billion.” 

Meanwhile, capital market analysts have attributed the upbeat at the stock market to the increasing attractiveness of the Nigerian market to foreign investors, ongoing economic reforms, resilient earnings by Nigerian companies, exchange rate differential, ongoing banking recapitalisation and the reform in the oil sector.

The Managing Director, HighCap Securities, Mr David Adonri, stated that the banking sector has contributed substantially to the growing turnover at the stock market.

Adonri said, “The recapitalisation of banks is orchestrating demand for their shares even in the secondary market. Highly capitalised stocks in the petroleum sector have also been upbeat. Finally, investors have also reacted positively to the big interim dividends declared by banks.”

A report by Afrinvest West Africa had indicated that FPIs in the Nigerian market could reach N1.1 trillion by the end of 2024 as foreign investors continued to increase their stakes on Nigerian securities.

Analysts at Afrinvest West Africa stated that at the current run rate, the size of foreign participation at the stock market should reach N1.1 trillion by year-end, translating to a 267.8 per cent increase on 2023.

Afrinvest estimated that total FPIs, including equities, money, and bond markets, could swell fourfold to $5.2 billion in 2024 in a base case scenario.

The analysts noted that even when adjusted at exchange rate of N1,510.10 per dollar, the current run rate should deliver about $728.4 million participation size on the NGX, representing a 60.9 per cent increase over the 2023 actual that was converted at an exchange rate of N907.10 per dollar.

“This marked improvement underscores the gradual return of foreign portfolio investors to Nigeria – a development we believe is largely connected to the ongoing reforms by the CBN,” Afrinvest stated.

The report highlighted a strong and positive correlation between FPI inflow data reported by the NBS in dollars and foreign investor participation statistics reported by the NGX in naira.

Afrinvest noted that the correlation was not a surprise given that equity is one of the three investment portfolio areas into which FPIs are deployed.

The report pointed out that although FPIs are less reliable in building sustainable foreign exchange buffers due to their characteristic nature of flight to safety, the recent dynamics if sustained hold positive for stabilising the exchange rate in the short to medium term.