Paragraph 1: Overview of Foreign and Domestic Investment Trends
The Nigerian Exchange (NGX) experienced significant shifts in investor behavior during the first half of 2025. Foreign investors withdrew a substantial N576.09 billion from the equities market, representing a dramatic 85% increase compared to the same period in 2024. This outflow surpassed foreign inflows of N559.25 billion, resulting in a net negative foreign portfolio position. Conversely, domestic investment surged, reaching N3.06 trillion, a 41.5% increase year-on-year and constituting 73% of total market transactions. This growth in domestic participation was primarily driven by institutional investors (N1.59 trillion) and retail investors (N1.47 trillion), demonstrating a near-parity in activity between the two groups, although institutional investors began to gain dominance in later months.
Paragraph 2: Volatility in Monthly Trading Activities
A closer examination of the monthly data reveals considerable volatility in both foreign and domestic trading activities. January 2025 began with relatively balanced domestic participation between retail and institutional investors, accompanied by moderate foreign transactions. February saw a rise in total activity, with institutional investment gaining momentum. March witnessed a remarkable surge in foreign inflows, driving total transactions to their peak for the half-year. This surge was followed by a sharp reversal in April, coinciding with a US tariff announcement, leading to decreased foreign inflows and a decline in both retail and institutional domestic trades. May saw continued elevated foreign outflows and a rebound in institutional investment, while June concluded the half-year with a recovery in foreign inflows and a significant increase in institutional participation, surpassing retail trading.
Paragraph 3: Factors Influencing Foreign Investment Flows
Several factors contributed to the complex dynamics of foreign investment flows. The inconsistencies in US trade policies under President Trump created uncertainty in global markets, impacting investor confidence. Additionally, high yields in Nigerian Treasury Bills (T-bills) attracted foreign investors seeking short-term gains, potentially diverting funds away from the equities market. Other factors impacting foreign investment include concerns about foreign exchange (FX) liquidity, repatriation policies, and macroeconomic stability. The naira’s appreciation against the dollar in June offered some support to inflows, but the persistent outflows indicated lingering anxieties among foreign investors.
Paragraph 4: Shifting Dynamics of Domestic Investment
The domestic investment landscape also underwent significant changes. While retail and institutional investors maintained a near-equal footing in the early months of 2025, institutional activity gained prominence later in the half-year. This shift can be attributed to several factors. High inflation rates exceeding 22% eroded real wages and reduced disposable income for retail investors, impacting their ability to participate in the market. Concurrently, institutional investors, such as pension funds and asset managers, sought higher returns in the equities market amid rising inflation and relatively low fixed-income yields, leading to increased institutional participation.
Paragraph 5: Expert Analysis of Market Trends
Financial analysts offered various perspectives on the observed market trends. Johnson Chukwu, Group Managing Director of Cowry Assets Management Limited, highlighted the significant role of foreign portfolio investment in the Nigerian economy, particularly in fixed-income instruments like T-bills and OMO bills, driven by attractive yields. He also suggested that the perceived overvaluation of Nigerian equities, following substantial market gains in previous periods, may have contributed to foreign investors’ cautious approach towards the equities market. Olatunde Amolegbe, Managing Director/CEO of Arthur Stevens Asset Management Limited, emphasized the trading nature of foreign portfolio investors, who seek profit opportunities and may exit positions after achieving their investment objectives. He argued that the fixed-income market often serves as a gateway for foreign investment, with funds eventually flowing into equities seeking higher returns.
Paragraph 6: Expert Insights on Investor Behavior
Dayo Adenubi, a research analyst, highlighted the quantitative, data-driven, and short-termist nature of foreign portfolio investors, who often operate through actively managed index funds. These funds are under pressure to outperform benchmarks and deliver substantial returns to their clients, leading to a focus on short-term gains and aggressive asset growth. This short-term perspective can contribute to the volatility observed in foreign investment flows. The overall picture painted by expert analysis suggests a complex interplay of factors influencing investor behavior, including global market conditions, domestic economic factors, and the specific investment strategies employed by different investor groups.
