Foreign inflows to Nigeria’s equities market fell by 29.66% in February 2025, dropping to N18.05bn from N25.66bn in January. This significant decline in foreign inflows, coupled with a reduction in foreign outflows, led to a sharp 40.36% drop in total foreign portfolio transactions. Transactions on the Nigerian Exchange Limited (NGX) fell from N71.51bn in January to N42.65bn in February, highlighting a weakening interest from offshore investors.
Impact of Macroeconomic Uncertainties and Exchange Rate Volatility
The decline signals growing concerns among foreign investors, likely driven by ongoing macroeconomic uncertainties and continued volatility in the foreign exchange market. This has created a challenging environment for investors, making them more cautious in their investment decisions. Despite a reduction in foreign outflows, which fell by 46.33% to N24.60bn from N45.85bn in January, fewer exits indicate a still cautious stance from investors.
Overall Market Activity Declines
Total market transactions in February decreased by 16.07%, from N607.05bn (about $410.84m) in January to N509.47bn (about $341.36m) in February. Despite the month-on-month drop, trading volumes were stronger compared to the same period last year. February 2025 saw a 42.36% increase in activity compared to N357.88bn in February 2024, demonstrating resilience in market participation year-on-year.
Domestic Investors Maintain Dominance
Domestic investors continued to dominate market activity, accounting for 91.63% (N466.82bn) of total equity transactions in February. Foreign investors contributed only 8.37% (N42.65bn), a noticeable decrease from January’s 11.78% share. This increase in domestic dominance reflects a shift towards local participation in the market. Within the domestic segment, institutional investors continued to play a more prominent role, with institutional transactions reaching N252.31bn in February. However, this marked a 5.92% decline from N268.19bn in January. On the other hand, retail investor activity dropped more sharply by 19.76%, from N267.35bn in January to N214.51bn in February.
Strong Domestic Performance Despite Foreign Decline
Cumulatively, total domestic transactions for the year stood at N1.002tn as of February’s end, outperforming the N890.48bn recorded during the same period in 2024. This highlights the growing dominance of domestic participation in the market. Despite a slowdown in foreign investments, foreign portfolio activity reached N114.16bn, slightly below the N118.92bn recorded in the first two months of 2024.
Long-Term Trends in Domestic and Foreign Participation
Over the last 18 years, domestic participation in the market has grown by 33.15%, from N3.56tn in 2007 to N4.73tn in 2024. Foreign transactions also showed growth, rising by 38.31% from N616bn to N852bn during the same period. However, the domestic market still accounts for the majority of market activity, making up 85% of total transactions in 2024.
Expert Insights on Market Performance and Challenges
Charles Sanni, CEO of Cowry Treasurers Limited, attributed the drop in foreign inflows to the naira’s volatility, which has created uncertainty for foreign investors. He noted that high domestic interest rates and inflation concerns could negatively affect corporate margins. Sanni warned that if interest rates remain high, the cost of funds for companies would rise, potentially reducing their profitability over time. He emphasized the need for the government to manage inflation, stabilize the naira, and ensure more transparency in financial reporting to restore investor confidence.
Outlook for the Market
While Sanni expressed optimism for improvements in the coming months, he also highlighted the risks posed by domestic economic conditions. He called for the stabilization of the naira and effective management of inflation to boost investor confidence and prevent investor fatigue.
