Foreign investors pulled out N45.85 billion from the Nigerian stock market in January 2025, significantly outpacing the N25.66 billion recorded as foreign inflows during the same period.
The latest Nigerian Exchange (NGX) Domestic and Foreign Portfolio Investment Report revealed that foreign outflows accounted for 64.12% of total foreign transactions, highlighting ongoing concerns about declining foreign participation despite the relative stability of the naira.
Capital Flight Despite Increased Transactions
Total foreign transactions on the exchange increased by 7.13%, rising from N66.75 billion in December 2024 to N71.51 billion in January 2025. However, the surge was driven mainly by investors selling off their holdings, leading to a much higher outflow than inflow.
This pattern suggests that while some foreign investors are still engaged in the market, a greater number are opting to exit, contributing to capital flight and reduced market liquidity.
Declining Market Transactions and Investor Sentiment
The report also showed a 9.89% decline in total equity transactions, which fell from N673.66 billion in December 2024 to N607.05 billion in January 2025.
On a year-on-year basis, total transactions dropped 6.83%, down from N651.52 billion in January 2024.
This decline indicates that both foreign and domestic investors are exercising caution, likely due to economic uncertainties and macroeconomic policies.
Domestic Investors Dominate Market Activity
According to the report, foreign investors accounted for only 11.78% of total market transactions, while domestic investors dominated with 88.22%.
This marked a slight increase from 9.91% foreign participation in December 2024 but remains well below historical levels, when foreign investors played a larger role in market liquidity and depth.
Institutional Investors Reduce Participation, Retail Investors Surge
A deeper look into domestic transactions reveals a shift in investor behavior:
- Institutional investors significantly reduced their participation, with transactions dropping 33.95%, from N406.04 billion in December 2024 to N268.19 billion in January 2025.
- In contrast, retail investors increased their activity by 33.10%, as their transactions rose from N200.87 billion to N267.35 billion within the same period.
This suggests that while institutional investors remain cautious, retail investors may be capitalizing on potential bargain opportunities in a market where valuations appear attractive.
Naira Stability Fails to Attract Foreign Investors
Despite concerns over foreign outflows, the exchange rate showed stability, with the naira appreciating from N1,535.81/$ in December 2024 to N1,478.22/$ in January 2025.
However, this stability was not enough to restore foreign investor confidence, as broader macroeconomic challenges persist.
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Long-Term Trends in Foreign and Domestic Investment
Over an 18-year period, the NGX report showed that:
- Domestic transactions increased 33.15%, from N3.556 trillion in 2007 to N4.735 trillion in 2024.
- Foreign transactions grew 38.31%, from N616 billion to N852 billion over the same period.
However, foreign participation has steadily declined in recent years, dropping to just 15% of total transactions in 2024, while domestic investors controlled 85% of the market.
Need for Stronger Foreign Investment and Market Reforms
The continued withdrawal of foreign investors underscores the need for:
- Stronger macroeconomic policies
- Improved market transparency
- Stronger investor confidence
Meanwhile, the Central Bank of Nigeria's monetary tightening policies, aimed at curbing inflation and stabilizing the naira, are gradually rekindling foreign interest in the Nigerian equity market.
However, sustained reforms will be essential to attracting and retaining foreign investments for long-term market growth.
