The significant drop in foreign participation on the Nigerian Exchange Limited (NGX) in the last couple of months of the first half 2026 rightly prompts the question whether the ‘bubble’ is about to burst. For quite a while, foreign participation, and the resultant quantum surge in foreign portfolio investment (FPI), has been the key driver of the creditable performance of the NGX in recent years.
However, since May 2026, foreign investors have been noticed to be retreating from the NGX on account of many factors, but particularly owing to concerns over the newly-introduced T+1 trade settlement cycle in the equity market. Specifically, foreign participation on the bourse plummeted to its lowest in recent times. Data from the NGX show the severity of this ‘capital flight.’ The T+1 trade settlement cycle meant that when one buys or sells stocks on the NGX, the cash and shares must be fully exchanged one business day after the trade date.
According to figures released by the NGX Regulation Limited, offshore trading volume plunged 25.9 percent to N183.6 billion at end-May 2026, effectively shrinking foreign investors’ footprint to merely 9.45 percent of total market activity. And this is the lowest level this year, even as overall transactions hit a 2026 peak of N1.94 trillion.
This trend also played out in June 2026, as the stock market experienced a period of broad-based profit-taking, shedding about N8.24 trillion in market value. The introduction of the T+1 settlement cycle which effectively took off on June 1, made the NGX the first in Africa to clear and settle trades one business day after execution. The downside of this however was that the new trade cycle prompted a temporary caution from some global funds — reflecting in the drop in foreign participation on the NGX.
On June 30, 2026, FTSE Russell had placed Nigeria’s upgrade (to T+1) under further review. This review directly affected the volume of foreign inflows into Nigeria by determining whether the country qualifies for global index inclusion. Because global asset managers rely on these indices to allocate capital, a positive review triggers automatic, positive investments, while a negative or delayed review stalls offshore funding.
Even Nigeria stock market being added to S & P Dow Jones Index (S &D DJI) watchlist for potential frontier market upgrade in 2027 could not make any immediate positive change. Nigeria was only reclassified from a “standalone market” to a “frontier market,” to reflect recent growing international confidence in its market reforms; but it remains on the watchlist.
While all these were playing out in the hearts of the global financial market, however, a season of profit-taking and investor-positioning was also taking a toll on the NGX’s performance, reflecting in dropping indices. Indeed, the NGX All-Share Index (ASI) declined by 8.37 percent (month-on-month) to close at 229,419.18 points, compared with 250,385.47 points at the end of May.
Consequently, total market capitalisation shrank by N13.29 trillion, settling at N147.22 trillion from N160.51 trillion in the previous month of May, reflecting a significant erosion in investors’ wealth. Also, figures released by NGX Regulation Limited show that market activity weakened noticeably during the closing months of the first half 2026: reflecting softer investor participation.
Total trading volume declined to 237.99 million units, while the value of transactions dropped by 7.94 percent (month-on-month) to N3.45 billion, clearly indicating reduced demand for both large-capitalised and high-priced equities. In the same vein, the number of executed deals declined by 44,047 transactions, pointing to a more cautious trading environment.
Undoubtedly, there have been concerns about “over elevated equity valuations” (or some sort of bubble), lingering uncertainty surrounding the domestic macroeconomic environment, as well as expectations of sustained tight monetary policy—all of which combined to prompt most investors to “lock in gains.” At the same time, there was some portfolio repositioning ahead of the half-year earnings season, with many institutional investors “reducing exposure to stocks that had delivered significant gains earlier in the year.”
It needs to be observed that the dawn of the second half of the year would seem to have thrown up headwinds that could yet hamper the performance of the Nigerian stock market. One is what looks like a volte-face in the U.S-Iran peace deal, in which the President of the United States of America, seems to have opted to literally “go back to the trenches.” The lingering war in the Middle East has had (and will continue to have) a lot of negative implications for the Nigerian economy.
The impact of the war on crude oil prices and trading, as well as global trade disruption generally have continued to keep the Nigerian economy on edge. Policy responses to keep the economy on an even keel have translated into further impoverishment of more of the citizenry. Concomitantly, these policies rather than improving the investment climate, end up rendering it more uncompetitive.
The continued high inflationary trajectory, and naira depreciation (that has seen the currency undervalued by up to 25 percent at end-June) are clearly dampers to foreign investor interests. This is because the supposedly high rate of returns in the local currency could translate to loss in dollar (or other hard currency) terms. This is “exposure to capital loss,” that every discerning investor abhors.
At present, the full import of Nigeria’s New Tax Laws is yet unfolding; the capital gains tax embedded therein could end up constituting a disincentive to FPIs. It could even trigger ‘capital flight’, as foreign investors could opt to ‘migrate’ to other more attractive markets. Also, for Nigeria, at present, the high-pitch insecurity in the land, coupled with the build-up to the general elections in early 2027 are scary to investors. FPIs historically exit during election years over “fear of violence and other election-related risks.”
For the NGX, all precautionary measures must be put in place such that the riotous noise around 2027 elections, and numerous other headwinds (from within and without) do not dim its light. The performing bourse cannot afford any vicarious losses at this time. Or, is the bubble really about to burst?
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Marcel Okeke, a practising economist and consultant in Business Strategy & Sustainability based in Lagos, is a former Chief Economist at Zenith Bank Plc. He can be reached at: obioraokeke2000@yahoo.com; +2348033075697
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