Foreign Investors Flee Nigerian Stock Market Amid Forex Crisis
The Nigerian stock market has experienced significant foreign investor sell-offs in 2024, primarily driven by the country’s ongoing foreign exchange crisis. Data from the Nigerian Exchange Limited (NGX) for the first eight months of the year revealed a staggering N355.74 billion worth of foreign stock sales.
Key Highlights:
1. Foreign Outflows:
• Between January and August 2024, foreign investor outflows exceeded inflows by N56.01 billion. The total value of foreign transactions reached N655.47 billion, a 194.22% increase from N222.78 billion in the same period of 2023.
• April 2024 saw the highest sell-off with N78.25 billion, followed by N69.41 billion in May and N43.94 billion in June.
2. Factors Influencing Sell-Offs:
• Unstable Naira: The depreciation of the naira, currently around N1,700 to the dollar, has prompted many investors to convert their holdings into more stable currencies.
• High Interest Rates: The Central Bank of Nigeria (CBN) raised interest rates five times in 2024, reaching 27.25%, which has also discouraged foreign investments in equities.
• Seasonal Market Decline: The stock market is experiencing a typical seasonal slowdown, with fewer earnings announcements driving investor interest.
3. Domestic vs Foreign Investment:
• Foreign investor participation in the Nigerian capital market has declined sharply since the COVID-19 pandemic, with domestic investors dominating the market.
• In August 2024, total domestic transactions fell by 25.81% month-on-month, from N434.09 billion in July to N322.05 billion in August. Foreign transactions saw a smaller decline of 0.09%, dropping from N57.52 billion in July to N57.47 billion in August.
4. Capital Importation and Investment:
• According to the National Bureau of Statistics, portfolio investments (including equities and bonds) accounted for 10.37% of capital inflows in the second quarter of 2024, a significant drop in equity investments compared to previous quarters.
• In contrast, the bond market attracted substantial foreign inflows, with N85.29 billion invested in bonds during the same period.
Market Outlook:
Market analysts have warned that ongoing foreign exchange volatility, combined with macroeconomic challenges, poses significant risks to Nigeria’s ability to attract foreign portfolio investment (FPI). While high yields may temporarily attract investors, the long-term outlook remains uncertain.
The Central Bank’s efforts to stabilize the naira, along with potential improvements in the country’s macroeconomic conditions, will be crucial in reversing the current trend of foreign investor sell-offs.
This summary provides a comprehensive breakdown of the foreign investor sell-off in the Nigerian stock market in 2024, emphasizing the key factors driving the exodus and the outlook for the future.
The Nigerian stock market has experienced significant foreign investor sell-offs in 2024, primarily driven by the country’s ongoing foreign exchange crisis. Data from the Nigerian Exchange Limited (NGX) for the first eight months of the year revealed a staggering N355.74 billion worth of foreign stock sales.
Key Highlights:
1. Foreign Outflows:
• Between January and August 2024, foreign investor outflows exceeded inflows by N56.01 billion. The total value of foreign transactions reached N655.47 billion, a 194.22% increase from N222.78 billion in the same period of 2023.
• April 2024 saw the highest sell-off with N78.25 billion, followed by N69.41 billion in May and N43.94 billion in June.
2. Factors Influencing Sell-Offs:
• Unstable Naira: The depreciation of the naira, currently around N1,700 to the dollar, has prompted many investors to convert their holdings into more stable currencies.
• High Interest Rates: The Central Bank of Nigeria (CBN) raised interest rates five times in 2024, reaching 27.25%, which has also discouraged foreign investments in equities.
• Seasonal Market Decline: The stock market is experiencing a typical seasonal slowdown, with fewer earnings announcements driving investor interest.
3. Domestic vs Foreign Investment:
• Foreign investor participation in the Nigerian capital market has declined sharply since the COVID-19 pandemic, with domestic investors dominating the market.
• In August 2024, total domestic transactions fell by 25.81% month-on-month, from N434.09 billion in July to N322.05 billion in August. Foreign transactions saw a smaller decline of 0.09%, dropping from N57.52 billion in July to N57.47 billion in August.
4. Capital Importation and Investment:
• According to the National Bureau of Statistics, portfolio investments (including equities and bonds) accounted for 10.37% of capital inflows in the second quarter of 2024, a significant drop in equity investments compared to previous quarters.
• In contrast, the bond market attracted substantial foreign inflows, with N85.29 billion invested in bonds during the same period.
Market Outlook:
Market analysts have warned that ongoing foreign exchange volatility, combined with macroeconomic challenges, poses significant risks to Nigeria’s ability to attract foreign portfolio investment (FPI). While high yields may temporarily attract investors, the long-term outlook remains uncertain.
The Central Bank’s efforts to stabilize the naira, along with potential improvements in the country’s macroeconomic conditions, will be crucial in reversing the current trend of foreign investor sell-offs.
This summary provides a comprehensive breakdown of the foreign investor sell-off in the Nigerian stock market in 2024, emphasizing the key factors driving the exodus and the outlook for the future.