EBC Financial Group says Nigeria has rebuilt confidence, but the question now is whether long-term investment, closer naira rates and deeper market trust support it
Market operator Nigerian Exchange Group PLC (NGX Group) reported that Nigeria’s stock market returned 67% in US dollar terms by 10 July, making it the best performer among the 92 stock exchanges worldwide. Yet equally large foreign buying may not echo the results. Global index provider FTSE Russell placed Nigeria’s planned move to Frontier status under review, so funds following its indexes may wait a while. Separately, the Securities and Exchange Commission (SEC), Nigeria’s capital-market regulator, introduced the one-business-day settlement on 1 June, giving foreign investors less time to convert dollars into naira and may lead some to prepare naira early or buy less.
David Precious, Senior Market Analyst at EBC Financial Group (EBC), said, “Index-linked funds may wait for Nigeria’s inclusion before buying while the one-day payment deadline may push other foreign investors to hold naira early or place smaller orders. Higher prices help current shareholders but companies only receive fresh capital when they issue new shares, and that requires investors who can actually get in.”
The NGX Group report shows that higher share prices and a 4% rise in the naira together produced the dollar return. Because each naira converted into more US dollars, the stronger currency increased investors’ gains. However, a rising index does not show how much foreign money entered, how widely gains were spread or whether profits rose as quickly as prices.
FTSE Review may Delay Index-linked Buying
FTSE Russell creates indexes used by investment funds. Funds following those indexes may buy eligible shares after a market is included. FTSE Russell announced in April that Nigeria was scheduled to move from Unclassified to Frontier status on 21 September, which could prompt buying of eligible shares. Its July rules later placed the move under review, leaving index-linked funds waiting.
S&P Dow Jones Indices (S&P DJI), another index provider, placed Nigeria on its 2027 watchlist for a possible move from Standalone to Frontier status. Under the Standalone status, S&P DJI assesses Nigeria on its own rather than grouping it with other frontier markets in its main classification system. Thus, Nigerian shares are therefore not automatically included in funds that follow S&P DJI’s broader frontier-market indexes. S&P DJI said consistent policy application and reliable market operations are required before reclassification may be considered. Some investors may therefore wait.
One-day Settlement may Require Naira in Advance
Under the SEC’s T+1 settlement rule, a Monday trade must be paid for and the shares delivered by Tuesday, one day sooner than before. A foreign fund may need to convert dollars into naira and transfer payment within that shorter period, which could lead some funds to hold naira before trading. This increases the currency risk faced by these institutions. If the naira weakens while the cash waits, the fund can only convert back fewer dollars. To mitigate this risk, the fund may therefore place smaller orders to reduce the amount exposed to that possible loss.
EBC previously highlighted in its analysis of Nigeria’s fake Dangote share offers that one-day settlement leaves less time to correct problems before payment. The rally adds a concern because the same deadline may leave foreign funds less time to arrange naira for a trade.
High Rates may Draw Money Towards Government Debt
The Central Bank of Nigeria (CBN) retained the Monetary Policy Rate (MPR) at 26.5% in May after cutting it by half a percentage point in February. At that level, Treasury bills, government bonds and naira deposits may offer high returns with less share-price risk and may compete with equities.
High rates may also make business loans expensive. Companies may borrow less for capital expenditure including equipment, stock or expansion, which could slow profit growth. Because profits help investors judge whether share prices are justified, prices may become harder to sustain if earnings do not rise.
A rate cut could ease borrowing costs but may carry a separate risk. Lower returns on naira assets could prompt some foreign investors to sell naira for dollars, which may weaken the currency and reduce their dollar returns. EBC also noted that further cuts may depend on dollar availability and naira stability.
EBC’s recent analysis of Nigeria’s US$51 billion reserves found that 95% of first-quarter foreign investment was money placed in financial assets, which may leave faster than investment in factories and businesses. This story begins one step earlier: index reviews and the shorter payment deadline may limit how much foreign equity money enters.
If funds delay buying, place smaller orders or choose government debt, companies selling new shares could face fewer buyers or lower prices. They may then raise less money for equipment, expansion and hiring or rely more on expensive bank loans. Nigeria’s stock-market return might attract attention, but sustained foreign investment should depend on index decisions, payment systems and interest rates.
“Nigeria’s stock market has delivered one of the world’s strongest returns,” Precious added. “Whether that performance draws the sustained foreign investment its companies need may depend on index decisions, payment infrastructure and interest rates moving in the right direction.”
