Nigerian Exchange Suffers as Foreign Investment Drops 19% in April

The Nigerian Exchange Limited (NGX) witnessed a significant downturn in April, with foreign investment inflows declining by 19.14% month-on-month to N42.58 billion from N52.66 billion in March. This decline reflects diminishing confidence among foreign investors in the local equity market, despite government efforts to stabilise the economy.

According to the Domestic & Foreign Portfolio Investment Report released by NGX, the decrease in foreign inflows coincided with a sharp increase in foreign outflows, which surged by 88.10% to N78.25 billion from N41.60 billion in March. This rise underscores foreign investors’ ongoing low appetite for Nigerian equities, a trend evident since the year began.

Foreign outflows have steadily risen from N37.33 billion in January to N40.88 billion in February, indicating growing concerns over market volatility and economic stability. Despite an overall increase in foreign transactions on the NGX to N120.83 billion in April, up from N94.26 billion in the previous month, this uptick was insufficient to offset the bearish trend, resulting in a loss of approximately N3.54 trillion.

Investors are shifting their focus towards alternative markets offering better yields and stability. Additionally, the impending settlement of $1.30 billion worth of cleared USD/naira-settled non-deliverable forwards (NDF) contracts on the FMDQ securities could further strain the naira.

Financial market analyst Olaide Baanu highlighted the potential impact of this settlement, suggesting that the significant cash outflow could lead to further naira depreciation beyond the CBN’s target range. The CBN may face liquidity management challenges and might need to intervene in the forex market to stabilise the naira’s value.

Despite efforts to boost non-oil revenues, Nigeria’s economy remains heavily dependent on oil, comprising about 90% of the national budget. The recent market performance underscores the urgent need for diversified revenue sources and robust economic reforms to restore investor confidence and stabilise the currency.

Effective policy implementation and transparent governance are crucial to attracting and retaining foreign investment amidst ongoing economic challenges. As NGX navigates this period, stakeholders are closely monitoring for signs of stability and growth that could reignite investor interest in the Nigerian market.