The level of foreign investors’ participation on the Nigerian Stock Exchange (NSE) has continued to shrink, dropping to 25.17 per cent as at July, 2014.

Foreign Portfolio Investment (FPI) had declined from 62.53 per cent in July 2013 to 25.17 per cent at the end of July 2014.

Data from major custodians and market operators on domestic and foreign portfolio participation polled by the NSE for the month of July revealed that the FPI which increased from 49.28 per cent in January to 68.59 per cent in February and further up to 78.25 in March.

However, the FPI started declining in April to 75.25, went down in May to 52.32 and further down to 25.17 per cent in July. Domestic investors can be categorised into either institutional or retail investors. Their transaction, on the other hand, rose to 74.83 per cent of total equity transaction in July, 2014 from 37.47 per cent in July, 2013.

The data indicated that total foreign investors transaction went down by 37 per cent from N89.42 billion in January, 2014, to N56.46 billion as at the end of July, while on the other hand, total domestic transactions stood at N167.77 billion as against N92.30 billion total transaction in the same period in 2013. The total transactions increased by 23.20 per cent from N181.97 billion in January to N224.19 billion in July and foreign portfolio investors’ inflows accounted for 14.58 per cent of total transactions while the outflows accounted for 10.59 per cent of the total transactions in July 2014.

In comparison to the same period in 2013, total FPI decreased by 39.79 per cent, whilst the total domestic transactions increased by 198.79 per cent. FPI inflows outpaced outflows which were the opposite when compared to the same period in 2013. Overall, there was a 49.60 per cent increase in total transactions in comparison to the same period in 2013. For instance, a comparison of the total flows with the transactions on the NSE for 2014 Year-To-Date (YTD) showed that the total transaction on the exchange was put at N1.38 trillion. The total FPI flow stood at N761.57 billion, while the total domestic transaction was put at N621.68 billion, representing 44.94 per cent. FPI inflow was put at N335.20 billion while their outflow stood at N426.37 billion.

According to the data from the NSE, between 2011 and 2012, there was an increase in the FPI transaction which outperformed the domestic investors transaction in the market. But in 2013, there was a major rebound in the domestic component which led to an almost equal split in foreign vs. domestic transactions. This gives credence to stakeholders’ worry of undue domination of the equity market by foreign investors and contrasts sharply with the exchange’s optimism of increasing local investors’ participation.

The managing director of Highcap Securities Limited, Mr David Adonri, attributed the drop in foreign investments to insecurity and the upcoming elections. He pointed out that the foreign investors are holding back and just waiting for something positive to happen to propel them to return. However some market analysts said, “The challenge with the huge presence of foreign portfolio investors in the country’s capital market is the heightened risk of market reversal and possible market crash should these portfolio investors have any reason to exit the market.”

According to the managing director of Investdata Consulting Limited, Mr Ambrose Omodion, the market may end the year on a poor performance lower than what the market analysts has anticipated in the beginning of the year due to the 2015 general elections. He pointed out that the foreign investors, who are the drivers of the market, are skeptical of the likely outcome of the elections.

In his remarks at the 2014 Investors Forum organised by the Nigerian capital market, the chief executive officer (CEO) of the NSE, Oscar Onyema, said that local investors’ participation in the stock market year-to-date outweighed foreign participation. He said that the NSE was working on the next phase of growth to be able to attract more foreign and domestic investors to the market.

“The NSE has started work on its new medium-term strategic direction, covering the 2014-2019 corporate strategic plans with clearly outlined objectives leading up to 2019,” he said.