Keypoints:
- Domestic investors control nearly 88 percent
- Foreign funds remain net equity sellers
- Settlement concerns complicate market access
NIGERIA’S record-breaking stock rally has exposed a striking contradiction: shares have delivered the strongest dollar returns in Bloomberg’s comparison of 92 global exchanges, yet overseas investors remain net sellers while local institutions and individuals dominate trading.
The divide matters because high returns alone do not create a deep, internationally connected market. Nigeria still needs sustained foreign participation to improve price discovery, attract benchmark-linked capital and support large listings, even as the domestic surge reflects growing confidence in market-led economic reforms.
World-leading gains, limited foreign buying
Bloomberg reported on July 31 that Nigerian equities had risen 66 percent in dollar terms since the start of 2026, placing the market first in its comparison of 92 exchanges.
The performance extended the advance examined in Africa Briefing’s earlier coverage of Nigeria’s global stock-market lead. Financial shares, a firmer naira and improved foreign exchange liquidity have helped sustain the rally.
Foreign investors, however, have largely preferred short-term Nigerian debt, where average yields of about 20 percent offer substantial returns without the same company-specific and liquidity risks carried by equities.
Local capital takes control
NGX figures show transactions reached ₦9.61tn ($6.97bn) in the first half of 2026, more than double the ₦4.19tn recorded during the corresponding period in 2025.
Domestic investors accounted for ₦8.45tn, or 87.93 percent, while foreign investors generated ₦1.16tn, representing 12.07 percent of total activity. A year earlier, the foreign share stood at 27.08 percent.
The figures do not mean foreign investors have disappeared. Their total transaction value rose marginally from ₦1.14tn a year earlier. Instead, domestic activity expanded so rapidly that overseas investors now occupy a much smaller part of the market.
Nigerian institutions generated ₦5.06tn in first-half transactions, while retail investors accounted for ₦3.39tn. The rally is therefore being financed overwhelmingly from within.
Foreign investors remain net sellers
The direction of foreign flows is less reassuring. Overseas purchases totalled ₦471.77bn between January and June, while sales reached ₦688.40bn, producing a net foreign outflow of ₦216.63bn.
Foreign trading improved slightly in June, rising 1.73 percent from May to ₦186.79bn. Its share of monthly transactions also recovered from 9.45 percent to 10.90 percent. Nevertheless, June sales of ₦115.08bn remained well above purchases of ₦71.71bn.
The picture is therefore more nuanced than a wholesale rejection of Nigerian stocks. Foreign participation persists, but offshore investors are taking more money from equities than they are committing.
Settlement change adds friction
Nigeria moved to a T+1 settlement cycle on June 1, requiring eligible equity and commodity trades to settle one business day after execution.
Nigeria’s Securities and Exchange Commission (SEC) says the reform should improve efficiency, reduce counterparty exposure and align the market with international standards.
For global managers, however, the shortened timetable can complicate trade confirmation, foreign exchange conversion and cash settlement across multiple time zones.
Kehinde Jones, head of research and strategy at Anchoria Securities Limited, told BusinessDay that settlement uncertainty was one factor making offshore investors more cautious.
‘As expected, foreign investors were not comfortable with the T+1 settlement system. This uncertainty reduced their confidence, limiting their market exposure beyond April levels,’ he said.
Jones also cited weaker global conditions, meaning T+1 should be treated as a contributing factor rather than the sole explanation for the broader outflow.
FTSE Russell has placed Nigeria’s planned return to frontier-market status under further review, warning that the compressed cycle could create a ‘de facto prefunded market’ for international institutions.
The index provider is expected to issue an update by the end of August.
Stockbrokers defend reform
Nigerian market professionals argue that T+1 does not formally require foreign investors to prefund trades.
The Chartered Institute of Stockbrokers says the delivery-versus-payment model remains intact, with cash and securities exchanged simultaneously. It has acknowledged operational challenges but maintains that regulators, banks, custodians and brokers can resolve them.
Sehinde Adenagbe, chairman of the Association of Securities Dealing Houses of Nigeria, also backed the reform while recognising the demands it places on market operators.
‘The T+1 settlement cycle is a major reform that will improve market efficiency and strengthen the integrity of the trading ecosystem,’ Adenagbe told BusinessDay.
He said brokers would require stronger liquidity buffers, greater automation and near real-time readiness to meet the shorter settlement timetable.
The dispute is therefore less about the rule itself than its execution. Nigeria must demonstrate that brokers, custodians and banks can complete cross-border transactions within the shorter window without creating avoidable barriers.
Strength or warning sign?
A locally driven rally is not inherently weak. It reduces reliance on volatile foreign capital, mobilises Nigerian savings and could provide a stronger base for major offerings, including the proposed Dangote Refinery listing.
But persistent foreign selling still matters. International investors add market depth, external valuation discipline and access to larger pools of capital. Their caution could also limit Nigeria’s ability to benefit from a frontier-market reclassification.
The next test will be whether corporate earnings justify elevated valuations, whether the naira remains stable and whether regulators resolve the settlement concerns before FTSE Russell’s decision.
Nigeria has proved that its own investors are prepared to back the equity market. It must now show that foreign institutions can enter, settle and exit trades with comparable confidence.
