Nigeria’s stock market faces tougher second half after record H1 rally

Nigeria’s stock market is likely to enter a more challenging second half (H1) after delivering stronger-than-expected gains in the first six months of 2026, with analysts warning that sustaining the rally will depend less on reform optimism and more on corporate earnings, inflation and monetary policy.

The Nigerian Exchange (NGX) has gained more than 51 percent so far this year, surpassing the 45 percent full-year return projected by Arthur Steven Asset Management at the start of 2026, leaving limited room for further upside unless economic fundamentals continue to improve.

“We had predicted at the beginning of the year that the market was going to do a 45 percent gain. The market has surpassed that. We are at 51 percent,” said the managing director of Arthur Steven Asset Management, Tunde Amologbe during the firm’s mid-year market outlook webinar.

“Our feeling is that ultimately we are likely to close at about this level by December 2026, probably at about 50 percent or just slightly below.”

The projection suggests investors should temper expectations after a first-half rally driven by banking recapitalisation, improving macroeconomic stability, stronger foreign exchange liquidity and renewed investor confidence.

Analysts say the second half is expected to be shaped by the Central Bank of Nigeria’s interest-rate decisions, third- and fourth-quarter corporate earnings, exchange-rate stability, as well as the timing of anticipated listings such as Dangote Refinery and the Nigerian National Petroleum Company (NNPC).

Read also: Nigerian Capital Market Strategy 2026: H1 Reform Milestones and H2 Outlook

“We are expecting relatively stable markets,” the Arthur Steven chief said, explaining that further gains would increasingly depend on corporate fundamentals rather than broad market momentum.

The optimistic market outlook is being supported by improving macroeconomic indicators.

Speaking in a recent interview, Segun Adams, a macroeconomic strategist at Afrinvest Research, said Nigeria’s economy has broadly performed in line with expectations despite disruptions from geopolitical tensions in the Middle East.

“The economy is moving in the direction we expected,” Adams said, citing stronger-than-expected GDP growth, improved exchange-rate stability, a stronger trade balance and Nigeria’s sovereign credit rating upgrade by S&P Global Ratings as evidence that reforms introduced since 2023 are beginning to gain traction.

Nigeria’s economy expanded by 3.9 percent in the first quarter of 2026, underpinned by stronger oil production and resilient non-oil sector growth despite tight monetary conditions, according to Afrinvest.

However, analysts cautioned that the same factors supporting markets could become headwinds in the months ahead.

Arthur Steven Asset Management said monetary policy, inflation, foreign exchange stability and earnings performance would remain the biggest determinants of investor sentiment through the rest of the year.

Afrinvest has also revised its average inflation forecast for 2026 higher after renewed geopolitical tensions disrupted the earlier disinflation trend.

“The war disrupted that trajectory,” Adams said, noting that rising global energy prices temporarily reversed the moderation in inflation witnessed across many economies, including Nigeria.

Although headline inflation has remained relatively stable, he said month-on-month inflation accelerated following higher fuel prices, prompting the research firm to raise its full-year inflation forecast.

The outlook suggests the Central Bank may have limited room to ease monetary policy aggressively, keeping yields attractive in the fixed-income market while reducing the likelihood of another broad-based equity rally.

Professor Uche Uwaleke, Nigeria’s renowned capital market economist, said the approach of the 2027 general elections presents another source of uncertainty for financial markets.

According to him, increased election-related spending could inject liquidity into the economy but may also fuel inflation if not carefully managed.

“If inflation is demand-driven as a result of increased money supply, the Central Bank will be compelled to hike interest rates,” Uwaleke said.

“There is an inverse relationship between rising interest rates and stock market performance.”

Beyond inflation, analysts also warned that Nigeria’s improving external position remains heavily dependent on short-term foreign portfolio investment.

While capital importation has strengthened and helped stabilise the naira and boost external reserves, Adams said foreign direct investment remains weak, accounting for only about 1.3 percent of total inflows.

He warned that portfolio flows, though beneficial in supporting liquidity and exchange-rate stability, can reverse quickly during periods of global uncertainty, exposing the economy to external shocks.

“FDI being currently at 1.3 percent is not good enough at all,” Adams said, adding that Nigeria must attract more productive long-term investment capable of supporting growth beyond the financial sector.

Despite those risks, analysts remain broadly positive on Nigerian assets, citing stronger economic fundamentals than a year ago.

Arthur Steven Asset Management expects investors to continue favouring equities over other asset classes but advised regular portfolio rebalancing as market conditions evolve.

“The next phase of the market will require stronger earnings delivery, sustained macroeconomic stability and continued policy consistency,” the firm said, adding that investors should pay close attention to monetary policy, inflation and corporate performance as the market enters a more demanding second half.