Data from the Nigerian Exchange (NGX) has revealed a significant decline in foreign participation in the Nigerian equities market, dropping to 8.15% in January 2024.
This marks a noticeable decrease compared to 13.92% and 12.76% recorded in the previous and corresponding months of 2023 respectively.
During January 2024, the Nigerian stock market witnessed a total transaction volume of N651.52 billion, a substantial increase from the N343.9 billion traded in the previous month. Within this period, foreign portfolio investment accounted for N53.11 billion, while domestic transactions amounted to N598.41 billion.
The dwindling foreign investments in Nigeria can be attributed to various factors, including the aftermath of the COVID-19 pandemic, FX instability, and dollar illiquidity. Foreign investors have faced challenges in repatriating their earnings promptly, deterring their participation in the Nigerian market.
To address FX volatility, the Central Bank of Nigeria (CBN) has implemented several reforms, including unification of the foreign exchange market and reduction of Net Open Positions for banks. Despite increased FX supply, the exchange rate has remained around N1500/$ to N1600/$, emphasizing the need to attract fresh dollar inflows.
Governor Yemi Cardoso of the CBN recently engaged foreign portfolio investors to communicate the bank’s reforms aimed at maintaining price stability and liberalizing the FX market. These efforts include settling FX backlogs and ensuring policy consistency to maintain investor confidence.
Key takeaways from the meeting include expectations of elevated interest rates to tame inflation, a focus on rebuilding investor confidence through transparent communication, and adjustments in monetary policy measures to tighten naira liquidity and encourage inter-bank trading activities.
Looking ahead, the CBN anticipates more frequent Open Market Operations (OMO) issuances and aims to maintain the Cash Reserve Ratio (CRR) in a non-disruptive manner, with long-term expectations of automatic CRR maintenance.
