FG records N27b foreign portfolio deficit in Q1, says FPI

The federal government have suffered a net deficit of N26.6 billion in foreign portfolio transactions in the first quarter of this year amidst fears of political and macroeconomic uncertainties.

A report on foreign portfolio investments (FPIs) indicated that the country recorded a negative balance of N26.6 billion in inflow and outflow transactions by foreign portfolio investors in Q1 as against a positive balance of N30.88 billion recorded same period last year.

The report also showed that foreign portfolio transactions dropped by N159.95 billion in Q1, representing a decrease of 41.89 per cent from the turnover in Q1 of last year. Total foreign portfolio transactions dropped from N381.82 billion in first quarter 2018 to N221.87 billion in first quarter 2019.

Foreign outflows surpassed inflows in 2019 with the sellers accounting for N124.24 billion as against N97.63 billion by the buyers. In Q1 last year, foreign inflows had outpaced outflows with N206.35 billion and N175.47 billion respectively.

The FPI report, coordinated by the Nigerian Stock Exchange (NSE), aggregates transactions from major custodians and capital market operators and it is widely regarded as a credible measure of the FPI trend. The report uses two key indicators-inflow and outflow, to gauge foreign investors’ mood and participation in the stock market as a barometer for the economy.

Foreign portfolio outflow includes sales transactions or liquidation of equity portfolio investments through the stock market while inflow includes purchase transactions on the NSE. Segmental analysis delineates the proportion of foreign to local participation, institutional to retail investors as well as the momentum of activities among others.

Market analysts attributed the decline to political risk and the fluctuations in the global financial markets. Analysts however differed on the outlook for the investment market.

Ayo Olushekun, vice chairman and chief executive officer, Capital Assets Limited, said political risk contributed to the decline in the first quarter, expressing optimism that the successful completion of the electioneering period will lead to rebound in the investment market.

“We expect to see a rebound, a gradual recovery. With political stability and the continuation of the economic programmes of the government, which should see improved investors’ confidence and long-term development of the economy,” Olushekun said.

“Given the sluggish recovery of the economy, we anticipate that the lingering bearish sentiments will remain in the near term as foreign investors continue to stay on the sidelines,” Afrinvest Securities stated in a review of the Nigerian equities market.

“We reiterate our view that the blend of a compelling valuation story, together with positive macroeconomic picture poses an upside for market recovery in the medium term. However, we guide investors to tread the cautious trading path in the short term,” Cordros Securities said, reinforcing its confidence in the recovery of the investment market.

However, foreign investors sustained their dominance of activities at the Nigerian investment market during the three-month period, continuing the trend that started in 2018. A full-year analysis had shown foreign portfolio investors overtook Nigerian investors as the dominant bloc at the Nigerian equities market in 2018, ending a two-year dominance of Nigerian domestic investors in the stock market.

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Foreign portfolio investors traded about N1.22 trillion on Nigerian equities in 2018, a marginal percentage point increase on about N1.21 trillion traded in 2017.

However, transactions tended towards outflows than inflows, reversing the positive net foreign portfolio investments of N336.94 billion recorded in 2017 with a negative net foreign portfolio deficit of N66.2 billion in 2018.

Total FPI transactions for the 12-month period ended December 31, 2018 stood at N1.219 trillion as against N1.208 trillion recorded in 2017. Total transactions at the Nigerian equities market had declined from N2.543 trillion in 2017 to N2.404 trillion in 2018. With these, foreign investors accounted for 50.87 per cent of total transactions at the equities market in 2018 compared with 47.49 per cent in 2017.

Nigerian domestic investors reduced their transactions to N1.185 trillion in 2018 as against N1.335 trillion in 2017, thereby accounting for 49.13 per cent of total transactions in the equities market in 2018 compared with 52.51 per cent in 2017.

While total transactions at the equities market declined in 2018, FPIs showed sustained growth at N1.219 trillion in 2018, building on the 133 per cent growth that saw total FPI transactions rising to N1.208 trillion in 2017. Foreign investors had accounted for the largest transactions at the stock market between 2011 and 2015 but were overtaken by domestic investors in 2016, who sustained their marginal lead in 2017.

Foreign transactions, which stood at N1.54 trillion in 2014, had declined considerably to N518 billion in 2016, before making a remarkable recovery to N1.208 trillion in 2017. Conversely, domestic investors, which had traded a high of N3.55 trillion in 2007, had shown considerable slowdown over the past 12 years, dropping by 66.67 per cent to N1.185 trillion in 2018.

However, the report showed net FPI deficit of N66.2 billion in 2018 as against surplus of N336.94 billion in 2017. Total foreign inflows in 2018 stood at N576.45 billion compared with outflows of N642.65 billion. Foreign inflows had in 2017 outpaced outflows at N772.25 billion and N435.31 billion.

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