The Nigerian stock market experienced a significant outflow of foreign investment in January 2025, totaling N45.85 billion. This substantial withdrawal overshadowed the N25.66 billion recorded as foreign inflows during the same period, raising concerns about the declining participation of foreign investors despite the relative stability of the naira. The dominance of outflows, representing 64.12% of total foreign transactions, indicates a prevailing trend of capital flight from the Nigerian equity market. While some foreign investors continued to engage with the market, a larger proportion chose to liquidate their holdings, contributing to the overall decline in market activity. This net outflow underscores a persistent reluctance among foreign investors to commit fresh capital to Nigerian equities, despite potential opportunities presented by attractive valuations.
The overall decline in market activity is reflected in the 9.89% decrease in total equity transactions on the Nigerian Exchange (NGX), falling from N673.66 billion in December 2024 to N607.05 billion in January 2025. This downward trend also represents a year-on-year decline of 6.83% compared to January 2024, suggesting a persistent cautious sentiment among both foreign and domestic investors. The subdued investor sentiment likely stems from prevailing economic conditions and uncertainties, prompting investors to hold back from significant market participation. The data reveals a substantial difference in trading volumes between domestic and foreign investors, with domestic transactions outperforming foreign transactions by approximately 76%. This reinforces the observation that domestic investors are currently the primary drivers of activity on the NGX.
Foreign investors’ share of total market transactions remained relatively low at 11.78%, with domestic investors dominating at 88.22%. Although this represents a slight increase from the 9.91% foreign participation recorded in December 2024, it remains significantly below historical averages. This highlights the reduced role of foreign investors in providing market liquidity and depth compared to previous periods when their participation was more substantial. The disparity between foreign inflows and outflows further underscores the challenges in attracting and retaining foreign capital within the Nigerian equity market.
A closer examination of domestic transactions reveals a notable shift in investor behavior. Institutional investors, typically a source of market stability, significantly reduced their participation, with transactions falling by 33.95% from N406.04 billion in December 2024 to N268.19 billion in January 2025. Conversely, retail investor activity showed a marked increase of 33.10%, rising from N200.87 billion to N267.35 billion during the same period. This contrasting trend suggests that while institutional investors remain cautious, retail investors are displaying greater enthusiasm, potentially drawn to perceived bargain opportunities in a market with potentially undervalued assets.
The relative stability of the naira exchange rate, appreciating from N1,535.81/$ in December 2024 to N1,478.22/$ in January 2025, did not appear to significantly influence foreign investor sentiment. Despite this positive movement in the exchange rate, broader macroeconomic challenges and uncertainties likely persist, hindering a more positive response from foreign investors. The NGX report provides a long-term perspective, indicating that while both domestic and foreign transactions have grown over an 18-year period (2007-2024), foreign participation has steadily declined in recent years. In 2024, foreign investors accounted for only 15% of total transactions, compared to the 85% share held by domestic investors. This underscores the need for targeted measures to attract greater foreign investment and enhance the overall stability and attractiveness of the Nigerian equity market.
The need to bolster foreign investor confidence is crucial for the long-term health and development of the Nigerian stock market. Increased foreign participation can provide much-needed liquidity, enhance market depth, and contribute to overall market stability. Achieving this requires a multi-pronged approach, including implementing stable and predictable macroeconomic policies, improving market transparency and regulatory frameworks, and addressing concerns regarding repatriation of funds. While the Central Bank of Nigeria’s monetary tightening policies aimed at controlling inflation and stabilizing the naira may eventually contribute to renewed foreign interest, a more comprehensive strategy is required to attract and retain foreign capital in the Nigerian equity market. This includes fostering a conducive investment environment that addresses broader economic and regulatory concerns, ultimately creating a more attractive and stable market for both domestic and international investors.
