Foreign Portfolio Inflows Into NGX Rise To $161.4m In H1 2024

In the first half of 2024, foreign portfolio inflows into the Nigerian Exchange (NGX) amounted to $161.4 million, marking a 14 percent year-on-year (YoY) increase from the $141.8 million recorded during the same period in 2023.

This growth reflects a renewed interest in the Nigerian market by foreign investors, despite ongoing currency challenges and broader economic uncertainty.

In naira terms, the foreign inflow during H1 2024 reached a substantial N229.07 billion, a sharp 218 percent YoY increase from N72.02 billion in H1 2023. However, this impressive growth in naira terms was significantly tempered in dollar terms due to the severe devaluation of the naira. The naira depreciated by 64 percent over the year, dropping from N508/$ in H1 2023 to N1420/$ in H1 2024, which muted the growth rate in dollar terms.

Despite this, the NGX’s overall performance has been robust. The total market transactions in H1 2024 amounted to N2.604 trillion ($1.83 billion), a 79.5 percent increase in naira terms from N1.45 trillion in H1 2023. However, in dollar terms, this actually represents a 36 percent YoY decline, underscoring the impact of the naira’s depreciation on the market’s performance when assessed from an international perspective.

Rising Foreign Outflows and Market Participation

While foreign inflows have increased, they were outpaced by foreign outflows, which reached $219.4 million in H1 2024, a 52.5 percent increase from $144 million in H1 2023. The consistent excess of outflows over inflows across five of the six months raises concerns about the role of foreign portfolio investments (FPIs) in supporting forex liquidity in Nigeria. Instead of bolstering the forex reserves, it appears foreign investors are more inclined to repatriate their profits, exacerbating the country’s foreign exchange challenges.

Foreign participation in the NGX increased notably in H1 2024, with total foreign involvement reaching $380.74 million (N540.48 billion), which represents 20.75 percent of the total market transactions. This is a significant improvement from the previous year, where foreign participation stood at $285.7 million (N145 billion), accounting for just 10 percent of market activity. This uptick in foreign interest suggests a growing confidence in the NGX, despite the challenging economic environment.

In the second quarter of 2024, foreign participation in the NGX spiked by 53 percent, reaching N327.3 billion ($230.5 million) compared to N213.2 billion ($152.6 million) in the first quarter. May 2024 saw the highest foreign participation since November 2021, with a foreign transaction value of N124.28 billion ($83.78 million), reflecting a significant investor interest during this period.

Impact on the Market and Investor Sentiment

The NGX’s performance has been remarkable, with the market earning recognition as the best-performing stock exchange in Africa for the first half of 2024 and one of the fastest-growing emerging markets globally. This exceptional performance highlights the capital-gaining potential of the NGX, attracting increased foreign investor interest.

However, the continued dominance of foreign outflows over inflows raises questions about the sustainability of this trend and the long-term impact on Nigeria’s forex liquidity. As foreign investors remain primarily focused on repatriating their earnings, the intended benefits of FPIs in stabilising the country’s foreign exchange reserves may not be fully realised.

Moreover, the surge in foreign investor interest could also play a crucial role in the ongoing recapitalisation efforts by Nigerian banks. As currency stability improves, investors may shift their focus to other market dynamics, such as the recapitalisation of banks, which could influence future investment decisions.

The first half of 2024 has been a period of mixed fortunes for the NGX. While foreign inflows have increased, they have been overshadowed by even larger outflows, reflecting the cautious optimism of foreign investors. The NGX’s overall performance and the rising foreign participation indicate a market with strong potential, but the underlying challenges of currency devaluation and capital flight remain pressing concerns that need to be addressed to sustain long-term growth and investor confidence.