Market News

…Portfolio investments rise 360% to $3.5bn in H1

…Investment growth linked to high-yield environment, reforms

Foreign investments in the Nigerian equities market stood at $150 million in the second quarter of 2024 (Q2 2024), marking a 204 percent increase from $49.4 million recorded in the first half (Q1).

It also marks a whopping 1,660 percent year-on-year growth from $8.5 million recorded in Q2 of 2023.

According to the Q2 2024 Capital Importation data released by the National Bureau of Statistics (NBS) on Tuesday, Foreign Portfolio Investment (FPI) in Nigeria in Q2 stood at $1.4 billion, down by 32 percent from the $2.08 billion recorded in Q1 of 2024. Year-on-year, the FPI grew by about 1,208 percent within the period, from $107 million recorded in Q2 of 2023.

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In the first half of the year (H1 2024), foreign portfolio investments in Nigeria hit $3.48 billion, representing a 360 percent year-on-year growth from the $756.1 million recorded in the corresponding half of 2023.

During the H1, foreign portfolio participation in Nigeria’s equities stood at $199.3 million. However, this was a 14 percent decline from the $230.8 million recorded in H1 of 2023. In Q1 of 2024, there was a foreign participation of $222 million in Nigeria’s equities. However, this fell to $8.5 million in the second quarter.

In H1 2024, the bulk of foreign portfolio participation in Nigeria was in money market instruments such as treasury bills, OMO bills, and commercial papers. Within the period, about 77 percent or $2.68 billion of Nigeria’s foreign portfolio investments were in money market instruments. For Q2, $1.08 billion investment was recorded from $1.61 billion in Q1.

Year-on-year, foreign participation in Nigeria’s money market instruments during the half-year grew astoundingly 20 times from $139 million in H1 2023. The growth in foreign investment in money-market instruments is linked to some of the sky-high rates offered on some of those bills.

For example, in H1 2024, the Central Bank of Nigeria (CBN) offered yields of up to 22.5 percent on some of its treasury bills. The apex bank also offered OMO bills at 22 percent. This was among the highest rates offered on CBN-issued money market instruments.

In the second half, the rates became even larger, with the CBN offering OMO bills at 27.25 percent, all to attract foreign portfolio investments into those instruments.

Private companies are not left out of these huge returns in the debt market. Companies with impressive credit ratings have been offering commercial papers at 25 percent, 28 percent, and even 30 percent discount rates.

About $599 million worth of FPIs went to bonds in H1 2024. However, about $420.8 million of this figure occurred in the first quarter. Compared to H1 2023, there was a 55 percent growth, as $386 million worth of FPIs went to bonds in H1 2023.

In H1 2024, the total capital importation into Nigeria stood at $5.98 billion, marking a 177 percent year-on-year growth from $2.16 million recorded in H1 2023. About 58 percent of the total capital importation came from foreign portfolio investments.

Matilda Adefalujo, a banking analyst with Meristem Nigeria noted, “We can link some of the activities to the recapitalisation exercise because we saw a lot of primary market activities on different banking stocks during that quarter.”

Samuel Oyekanmi, investment research analyst with Norrenberger, a finance-focused firm, linked the surge to some of the CBN’s policies aimed at increasing foreign capital inflows.

He noted, “We can start from some of the policies that CBN has implemented that has helped transactions for foreign portfolio investors in Nigeria. The improved foreign exchange supply also boosted sentiments around bringing money into the Nigerian market, even though most of that monies went to money market instruments.”

Oyekanmi also highlighted the high interest rate environment, noting that it positioned Nigeria as an attractive environment for high-yielding instruments.