Foreign investors shun stocks, put more money in treasury bills

Foreign portfolio investors largely stayed away from Nigeria’s equities market during the first seven months of 2026 despite the country’s emergence as the world’s best-performing stock market, preferring instead to invest in short-term government securities offering yields of about 20 per cent.

Their cautious positioning came even as the Nigerian Exchange (NGX) delivered a year-to-date return of about 60 per cent and added about N60 trillion in market capitalisation between the start of January and July 30, 2026, driven by sustained domestic demand, stronger corporate earnings and improved market liquidity.

Market data showed that foreign investors accounted for only N1.160 trillion, representing 12.07 per cent of total equity transactions during the first half ended June 30, 2026, down sharply from about 27 per cent recorded during the corresponding period of 2025.

In contrast, domestic retail and institutional investors executed transactions worth N8.448 trillion, representing 87.93 per cent of total market activity, highlighting the increasing role of local capital in sustaining the market’s upward trajectory.

The preference for fixed-income assets came as Treasury bill yields remained around 20 per cent, allowing investors to secure relatively high returns with lower risk while avoiding uncertainties associated with exchange rate movements and broader macroeconomic conditions.

The trend is consistent with broader foreign capital flows into Nigeria. Reuters reported in March that although capital inflows into Nigeria nearly doubled in 2025 to $23.22 billion, about 85 per cent of foreign portfolio investment was channelled into money-market instruments and bonds, while equities accounted for a much smaller share.

The report underscored foreign investors’ continued preference for high-yield fixed-income assets despite improving sentiment toward the Nigerian economy.

The International Monetary Fund (IMF) also observed in its 2026 Article IV Consultation that Nigeria’s recent foreign capital inflows have been largely portfolio-driven, with significant investment directed at high-yield money market instruments. While acknowledging improvements in macroeconomic reforms, the Fund recommended policies that would encourage more stable long-term capital, including foreign direct investment and equity investment. The cautious stance adopted by foreign investors also reflected broader global portfolio trends. International investors have increasingly shifted allocations toward debt securities across emerging markets in response to elevated global interest rates and risk considerations, even as several equity markets posted strong returns.

Despite the reduced foreign participation, Nigeria’s equities market recorded one of its strongest performances in recent history. Market capitalisation rose from about N99.38 trillion at the close of trading on December 31, 2025, to approximately N158.34 trillion as of July 30, 2026, representing an increase of about N60 trillion within seven months.

The rally was supported by strong corporate earnings, increased market liquidity and sustained investor demand for fundamentally strong companies across the banking, industrial and consumer goods sectors.

The market’s strong performance also translated into record trading activity. Total equity transactions reached N9.60 trillion during the first half of 2026, more than doubling the N4.193 trillion recorded during the corresponding period of 2025, reflecting increased participation by domestic institutional and retail investors.

Analysts said the divergence between domestic and foreign investment behaviour reflected differences in investment priorities rather than weakening confidence in Nigeria’s capital market.

Vice President of Highcap Securities Limited, David Adonri, said the growing dominance of domestic investors demonstrated the resilience of the market. “We see the current environment as one of evolving investor preferences rather than diminished interest in Nigeria’s equity market. What is particularly encouraging is that the market has demonstrated remarkable resilience, underpinned by a deepening domestic investor base,” he said.

“As macroeconomic stability strengthens and reforms continue to take effect, we expect Nigeria’s investment proposition to become even more compelling for long-term capital,” Adonri added.

He noted that the Nigerian Exchange remains focused on building a more efficient, transparent and globally competitive market by leveraging technology, advancing sustainability, strengthening market infrastructure, fostering innovation and expanding access to quality investment opportunities.

Analysts also attributed the resilience of the market to the growing participation of pension funds, domestic institutional investors and retail investors seeking returns above inflation, particularly as listed companies continued to report stronger earnings following economic reforms.

Banking stocks have remained among the biggest beneficiaries of the rally as investors positioned ahead of ongoing recapitalisation exercises, while industrial and consumer goods companies also attracted renewed interest on the back of improving earnings expectations.

Market operators believe foreign participation could strengthen over time if macroeconomic stability continues to improve, inflation moderates further, exchange rate conditions become more predictable and reforms deepen investor confidence.

For now, however, Nigeria’s record equity rally has been driven primarily by domestic investors, whose growing participation has enabled the market to sustain one of its strongest periods of growth despite the limited contribution of foreign portfolio capital.