Investors shift to stock-picking as broad 2025 gains fade

Nigeria’s equity market is entering a phase where broad exposure is unlikely to deliver the scale of returns seen in 2025, as experts say gains in 2026 will depend more on how investors position their capital across sectors and companies than on overall market direction.

The outlook follows a historic performance on the Nigerian Exchange (NGX) last year, driven by macroeconomic reforms, exchange-rate stabilisation, and resurgent foreign portfolio inflows.

Market participants are now shifting focus toward selectivity, balance-sheet strength, and strategic sector exposure.

“Returns will no longer come from being in the market, but from where investors are positioned,” Uche Uwaleke, professor of capital markets at Nasarawa State University, said during a recent Arthur Steven Asset Management webinar on the macroeconomic outlook for 2026.

He framed 2025 as a year of broad participation, and 2026 as a year requiring targeted investment in specific sectors and companies to outperform in the market.

Official NGX data show the All-Share Index (ASI) delivered a 51.19 percent full-year return in 2025, its strongest performance since 2007, closing at a record 155,613.03 points.

Market capitalisation rose 58 percent to N99.38 trillion. The consumer goods index increased by 129.6 percent, insurance increased by 65.5 percent, industrial goods increased by 58.9 percent, and banking stocks increased by 39.8 percent.

The only exception was the oil and gas sector, which fell by 1.54 percent.

Foreign participation rebounded with Central Bank of Nigeria (CBN) data showing total capital importation in the first quarter of 2025 rising 67.12 percent year-on-year to $5.64 billion, driven chiefly by portfolio inflows.

Uwaleke noted that the scope of the 2025 gains reflected a market responding to reform rather than company-specific fundamentals.

“Reforms lifted most assets last year,” he said. “But once those reforms are priced in, investors will have to pay closer attention to individual corporate health.”

Macroeconomic conditions entering 2026 support that view. Inflation, rebased by the National Bureau of Statistics in January 2025, fell to 15.15 percent in December from 27.33 percent in January, improving real returns but also suggesting the disinflation-driven rerating may be nearing its limit.

External buffers present a mixed picture. CBN data indicate external reserves declined from $40.19 billion at the end of December 2024 to $37.82 billion by March 2025, before stabilising later in the year.

Oil prices, which provided relative stability in 2025, are forecast to remain volatile in 2026, sustaining fiscal risks.

The current macro environment is forcing a shift toward a more nuanced, sector-specific strategy. Banks are being focused on during this transition due to the ongoing CBN-mandated recapitalisation exercise, which is expected to trigger a wave of mergers and capital raises that will strengthen balance sheets ahead of the March 2026 deadline.

This regulatory push creates a divide between tier-one lenders and smaller players, making stock selection within the financial sector more critical than ever.

The divide is equally apparent in the real sector, where consumer goods companies are also being watched closely, supported by pricing power and easing foreign exchange pressures, while industrial goods firms tied to capital spending remain sensitive to execution risks.

Consequently, analysts caution that the liquidity injected by election-related spending and capital-raising activity is often temporary and unevenly distributed across the market.

Oil remains the primary risk, with government revenue and forex earnings exposed to price fluctuations and geopolitics, factors that could quickly shift investor sentiment.

For investors, the implication is a strategic pivot away from the widespread, passive gains of the previous year. Analysts now anticipate a more selective environment this year where returns will diverge based on how well a company navigates high operational costs and shifting policy dynamics.

As Nigerian stocks transition from a phase driven by broad reforms to one focused more on fundamentals, the market is set to reward active selection over passive exposure.

Uwaleke explains that 2026 will be defined by deliberate positioning, suggesting that investors will have to be deliberate about where they deploy capital.