FX scarcity takes toll on capital market, foreign investors’ participation declines

Foreign exchange crisis in the country has pushed down the participation of foreign investors in Nigeria’s stock market to a meagre 16.8 per cent, according to information sourced from the NGX website.

As at the time of compiling this report, the exchange rate between the naira and the dollar fluctuated between N444 and N446 to the dollar at the official market, while the rate on the parallel market was N745 to the dollar.

However, Nigeria’s Foreign Portfolio Investments, or FPIs, increased by 11.8 per cent to N321.04 billion in the third quarter of 2022, from N287.2 billion in the same period of 2021.

Investment analysts said the unfavourable development is sending jitters to portfolio investors and multinational firms, who are already finding it difficult to repatriate their funds in dollars.

While Naira’s official depreciation against the dollar this year is about 4 per cent, investigation shows that many international portfolio managers looking to repatriate funds from the country are unable to access that rate due to a scarcity of hard cash.

According to the Managing Director/Chief Executive Officer, SD&D Capital Management Limited, Mr. Idakolo Gabriel Gbolade, the sustained fall of the Naira is negatively affecting the capital market because the value of the Naira drives the price of stocks in the capital market.

“The lower value of the Naira will cause lower purchasing power for stocks and factors like inflation, interest rate, exchange rate, and government policies are key factors that affect investors’ decision as regards taking positions in the capital market.”

On his part, Executive Director, Cordros Capital Limited, Mr. Femi Ademola believed that the instability in the value of the Naira may not affect local shareholders much, explaining, however, that foreign shareholders will be seriously affected.

“Some domestic investors also benchmark their portfolio in foreign currencies; hence they are interested in a stable currency. In addition, stock exchanges are globally benchmarked in USD; hence a fall in Naira value will negatively impact the value of the exchange.”

According to the Chairman, Royal Statistical Society (RSS), Dr. Olaniyi Matthew Olayiwola, both local and foreign investors are now afraid of investing in the country due to Naira instability and insecurity.