Foreign Inflows into Nigerian Stocks Hit Four-Month Low After T+1 Shift

• Local investors push total transactions to 19-year high

Foreign investment in the Nigerian Exchange Limited (NGX) fell for the fourth consecutive month in July, as the market’s shift to a shorter T+1 settlement cycle appears to be adding to operational challenges for international investors.

Analysis of the latest NGX data by Markets Reporters shows that foreign inflows plunged 41.9 percent to N41.6 billion in July from N71.7 billion in June.

The July decline was the sharpest since the downward trend began in April, following an 18.2 percent drop in June.

Foreign outflows also declined, falling 20.9 percent to N91.0 billion from N115.1 billion in June.

On a year-on-year basis, foreign inflows in July were 17.6 percent lower than the N50.5 billion recorded in the same month last year, while outflows fell from N95.5 billion over the same period.

Foreign investors accounted for just 5.6 percent, or N132.6 billion, of the N2.37 trillion worth of transactions on the NGX in July. That was their lowest share since April 2023 and a sharp decline from 10.9 percent, or N186.8 billion, in June.

In value terms, foreign transactions fell 29 percent month-on-month from N186.79 billion in June to N132.62 billion in July. On a year-on-year basis, foreign transactions declined by 9.12 percent.

The decline comes nearly two months after Nigeria moved from a T+2 to T+1 settlement cycle on June 1, requiring equity transactions to be settled one business day after execution.

The transition made Nigeria the first African market to adopt T+1 and was designed to reduce settlement risk, improve market efficiency and bring the country closer to global market standards.

However, the shorter settlement window has raised concerns among international investors about the time available to complete foreign-exchange conversion, custodial processing and securities settlement.

On June 30, FTSE Russell, which is reviewing Nigeria’s planned return to its Frontier Market index, specifically flagged the implications of T+1 for international institutional investors.

The global index provider said the shortened settlement cycle could effectively make Nigeria a prefunded market for foreign investors because offshore investors may need to position funds in advance to ensure they can complete transactions within one business day.

Local investors fill the gap

While foreign activity weakened, domestic investors deepened their dominance of the Nigerian market, helping push total transactions to their highest level in 19 years.

Domestic transactions rose 46.39 percent month-on-month from N1.53 trillion in June to N2.24 trillion in July, accounting for 94.4 percent of total transactions — the highest share in more than three years.

Total transactions on the NGX increased 38.17 percent from N1.71 trillion in June to N2.37 trillion in July. Compared with the same period last year, total market transactions rose 30.5 percent.

The surge in domestic activity was driven largely by institutional investors, whose transactions increased 66.18 percent to N1.65 trillion from N994.49 billion in June.

Retail transactions also increased, rising 9.42 percent to N582.44 billion.

The growing dominance of local investors marks a significant shift in the structure of Nigeria’s equity market. As of July 31, domestic investors accounted for 89.21 percent of year-to-date transactions worth about N10.68 trillion, compared with 10.79 percent, or N1.29 trillion, for foreign investors.

That shift has helped cushion the impact of weaker foreign participation, but it also highlights the extent to which Nigeria’s equity market has become increasingly dependent on domestic capital.

T+1 puts Nigeria’s foreign-investor appeal to the test

The decline in foreign activity comes at a sensitive time for Nigeria’s capital market, which has spent years implementing reforms aimed at improving its attractiveness to international investors.

Nigeria had been scheduled to return to the FTSE Russell Frontier Market Index in September after being upgraded from Unclassified status during the March 2026 interim review.

FTSE Russell said it would provide an update on Nigeria’s classification by the end of August.

The timing of the review makes the impact of T+1 particularly important for Nigeria’s efforts to attract foreign portfolio investors.

Analysts at CSL Research cited in a recent note that the concern is particularly relevant for offshore investors because completing an equity trade within one business day can be more difficult when foreign-exchange conversion, global time-zone differences and custodial processes are involved.

A shorter settlement cycle could therefore force some investors to pre-position naira or other funds before executing trades, potentially increasing the cost and operational complexity of investing in Nigerian equities.

“We view the engagement between the NGX, FTSE Russell, and international investors as a constructive step towards addressing these operational concerns and demonstrating the Exchange’s commitment to maintaining Nigeria’s attractiveness to foreign portfolio investors,” CSL Research said.

The research firm added that although the outcome of the discussions has not been disclosed, media reports suggest the engagement was broadly positive and may have provided greater clarity and reassurance to market participants.

“FTSE Russell is expected to announce the outcome of its assessment next month. We remain cautiously optimistic that a favourable decision could support Nigeria’s re-entry into the FTSE Russell Frontier Markets Index, providing an additional catalyst for foreign portfolio inflows, improved market liquidity, and stronger equity market performance,” the firm said.