Foreign transactions decline on NGX as naira weakens

Foreign investors are pulling out of the Nigerian Exchange as year-to-date foreign outflows surged to N400.04bn, surpassing foreign inflows of N344.30bn by October 2024, reflecting a net withdrawal of N55.74bn.

Data from the exchange domestic and foreign portfolio participation in equity trading as of October 31, showed that foreign transactions accounted for only 16.65 per cent of total trading activity valued at N4.47tn in the first ten months of the year, while domestic transactions contributed a dominant 83.35 per cent.

In October 2024, total foreign transactions increased by 14.61 per cent from N41.41bn in September to N47.46bn, comprising N33.31bn in inflows and N14.15bn in outflows.

However, foreign investors’ share of the total market activity was just 9.44 per cent, as domestic investors accounted for 90.56 per cent of the N502.73bn total transactions during the month.

The continuous depreciation of the naira, which weakened by 2.31 per cent or N38.12 at the National Autonomous Foreign Exchange Market to N1690.37/$ compared to 1652.25/$ a few weeks back, has exacerbated foreign investors’ concerns.

Domestic investors have sustained the market, contributing N3.73tn year-to-date with retail and institutional investors accounting for N1.91tn and N1.82tn, respectively.

Compared to 2023, foreign transactions have improved from N291.38bn year to date as of October last year to N744.34bn in 2024.

Despite this, foreign participation remains lower than domestic trading, raising concerns about the NGX’s ability to attract and retain foreign capital.

A broker and board member of Highcap Securities, David Adonri, noted that the foreign outflows are a sign that investors are repatriating profits.

“If the outflow exceeds the inflow, it indicates that foreign investors are taking profits back to their home countries. The volatility of the naira also impacts investor confidence; every investor prefers to operate in a stable environment.

“The market has seen some capital appreciation in stocks, but the presence of foreign investors is no longer as dominant, and their departure will have a less severe impact on the market now,” he said.

He further explained that while the exit of foreign investors might reduce the supply of foreign currency in the market, it won’t significantly destabilize the economy as long as domestic participation remains strong.