The first quarter of 2024 saw a significant increase in foreign investors’ participation in Nigerian equities, with a year-over-year increase compared to Q1 2023. According to the recently released Domestic and Foreign Portfolio Investment Report by the Nigerian Exchange Limited (NGX), foreign Investors accounted for 13.77% of Nigerian equities deals, while domestic investors accounted for 86.23%. This increase in foreign investors’ participation is a positive sign for the Nigerian economy, as it indicates a growing confidence in the country’s stock market.
Also, the report shows that out of the total ₦1.547 trillion worth of equities traded on the Nigerian Bourse in Q1 2024, foreign investors traded stock worth ₦213.18 billion, while domestic investors traded ₦1.334 trillion worth of equities. The Domestic and Foreign Portfolio Investment Report is prepared on a monthly basis by NGX Regulation Limited, with trading figures from market operators on their Domestic and Foreign Portfolio Investment (FPI) flows. These transactions are carried out by domestic and foreign investors, with domestic investors further categorized into Retail and institutional investors.
Several factors are responsible for the increase in investor’s participation.
In the first quarter of 2024, foreign inflow was ₦93.37 billion while foreign outflow was ₦119.81 billion. This indicates that foreign investors are increasingly interested in Nigerian stocks, with a net inflow of ₦26.56 billion. Domestic retail investors accounted for ₦670.89 billion in Q1 2024, while domestic institutional investors traded equities valued at ₦663.87 billion. In comparison, in the same first quarter (Q1) period of 2023, foreign inflow was ₦18.12 billion while foreign outflow was ₦35.59 billion.
Domestic retail investors controlled ₦123.28 billion equities deals in Q1 2023, while domestic institutional investors were responsible for stock deals worth ₦353.24 billion in Q1 2023. The increase in foreign investors’ participation in Nigerian equities can be attributed to several factors, including the country’s Economic Growth prospects, the attractiveness of Nigerian stocks, and the relatively stable political environment. Nigeria’s Economy has been growing steadily in recent years, with a growth rate of 3.4% in 2022, and this growth is expected to continue in 2024.
There are some risks accompanying the increase.
Further, the attractiveness of Nigerian stocks is also a major factor, with many companies listed on the NGX offering high dividend yields and growth potential. The relatively stable political environment in Nigeria is also a positive factor, as it provides a conducive environment for investors to operate. The increase in foreign investors’ participation in Nigerian equities is a positive development for the country’s economy, as it provides a source of capital for Nigerian companies and helps to deepen the country’s capital market. It also indicates a growing confidence in the Nigerian economy and its potential for growth.
However, it is important to note that the increase in foreign investors’ participation in Nigerian equities also poses some risks, such as the potential for capital flight and the impact of global economic trends on the Nigerian economy. On capital flight, there is the potential for foreign investors to suddenly withdraw their investments, leading to a destabilization of the economy. Therefore, it is important for policymakers to ensure that the country’s economy is diversified and resilient enough to withstand any potential shocks.
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To sum up, the increase in foreign investors’ participation in Nigerian equities in Q1 2024 is a welcome development for the country’s economy. This upsurge indicates a growing confidence in the Nigerian economy and its potential for growth, which is a positive sign for the country’s economic prospects. However, it is important for policymakers to recognize that this increased participation also brings potential risks, such as the possibility of capital flight and the impact of global economic trends on the Nigerian economy.