The Nigerian equity market experienced a significant dip in foreign investment during February 2025, with inflows plummeting by nearly 30% to N18.05 billion compared to N25.66 billion in January. This decline, coupled with a substantial reduction in foreign outflows, resulted in a dramatic 40.36% contraction in overall foreign portfolio transactions on the Nigerian Exchange Limited (NGX), settling at N42.65 billion for the month. This downturn signals a waning appetite for Nigerian equities among international investors, likely attributable to prevailing macroeconomic uncertainties, particularly the persistent volatility in the foreign exchange market, which makes it difficult for foreign investors to predict their returns in their home currencies. The instability of the naira against other currencies creates a challenging environment for foreign investors seeking stable and predictable returns.
While foreign outflows also decreased considerably by 46.33% to N24.60 billion in February, down from N45.85 billion the preceding month, this doesn’t necessarily indicate a renewed confidence in the market. Instead, it suggests a more cautious approach from foreign investors, possibly waiting for clearer signals of economic stability before significantly re-engaging with the Nigerian market. The overall decline in trading activity on the NGX further reinforces this cautious sentiment, with total transactions falling by 16.07% month-on-month to N509.47 billion in February from N607.05 billion in January. This paints a picture of a market grappling with internal and external pressures, impacting both domestic and foreign investor behavior.
Despite the monthly downturn, the NGX witnessed a considerable year-on-year growth in trading volume, with February 2025 figures showing a 42.36% surge compared to the N357.88 billion recorded in February 2024. This uptick can be largely attributed to increased domestic investor participation, which continued to dominate market activity. Domestic transactions accounted for a staggering 91.63% (N466.82 billion) of total equity transactions in February, leaving foreign investors with a meager 8.37% share (N42.65 billion). This underscores the growing importance of domestic investors in sustaining the Nigerian capital market and their increasing influence on market dynamics.
Within the domestic investor segment, institutional investors maintained their dominance over retail investors, although both categories experienced a decline in activity during February. Institutional transactions totaled N252.31 billion, a 5.92% drop from January’s N268.19 billion, while retail investor activity saw a sharper decline of 19.76%, falling from N267.35 billion to N214.51 billion. The decrease in retail investor activity could be linked to factors such as rising inflation and economic uncertainty, which often lead to reduced risk appetite among individual investors. Despite these monthly fluctuations, the cumulative domestic transactions for the first two months of 2025 reached an impressive N1.002 trillion, significantly outperforming the N890.48 billion recorded during the same period in 2024.
Looking at the long-term trend, domestic participation in the Nigerian equity market has grown substantially over the past 18 years, increasing by 33.15% from N3.56 trillion in 2007 to N4.73 trillion in 2024. Foreign transactions also experienced significant growth during this period, rising by 38.31% from N616 billion to N852 billion. However, domestic investors continue to hold the lion’s share of market activity, accounting for 85% of total transactions in 2024. This sustained dominance highlights the increasing depth and resilience of the domestic investor base in Nigeria.
Experts attribute the fluctuations in foreign investment to a combination of factors, including the volatility of the naira, high domestic interest rates, and macroeconomic uncertainties. The instability of the naira against other currencies creates unpredictability for foreign investors, eroding potential returns. High domestic interest rates, while potentially attractive to domestic investors, can squeeze corporate margins and impact overall economic growth, indirectly affecting foreign investor confidence. Concerns about transparency in financial reporting and potential political instability further contribute to the cautious approach adopted by international investors, who are seeking stable and predictable environments for their investments. This combination of factors requires a multi-pronged approach from policymakers to restore confidence and attract sustained foreign investment back into the Nigerian equity market.
