Foreign investors are increasingly turning to Nigeria’s markets, drawn by the country’s economic recovery and the potential to avoid the impact of trade wars sparked by US President Donald Trump’s policies. Amid growing concerns about US trade wars with larger developing economies, Nigeria, Africa’s most populous country, has become an attractive option for portfolio managers looking to diversify their holdings and invest in frontier markets experiencing a resurgence.
The Nigerian naira has emerged as one of the world’s top-performing currencies since the US elections in November, appreciating by more than 7% against the dollar. This rebound, combined with high yields of 20% to 25%, has contributed to a rally in Nigeria’s local bond market, which follows a massive devaluation. The rally highlights how specific country-focused investments—known as “idiosyncratic” trades—are gaining favor with investors who are seeking resilience amidst the uncertainty surrounding US tariffs and their impact on emerging markets.
According to Razia Khan, head of research for Africa and the Middle East at Standard Chartered, investors are now seeking resilient markets amidst growing trade tensions. “Even though everyone is rethinking with Trump’s policies and the inflation impact, investors are looking for potential places to invest that might be able to be resilient,” Khan said. Countries like Nigeria, which are less integrated into the US economy compared to wealthier emerging markets, are seen as more stable investments amid the global uncertainty.
In an article by the Financial Times, analysts note that commodity-exporting countries like Nigeria, which are less exposed to US tariffs, are becoming more attractive to investors. The recent market improvements in Nigeria have been particularly appealing to hedge funds, which have made substantial gains in recent months by pursuing opportunities in emerging markets recovering from crises. Alexis de Mones, debt portfolio manager at Ashmore, explained that Nigeria’s relatively low exposure to US trade wars makes it a good investment in the current environment.
Nigeria’s stock market has gained approximately 4% in dollar terms this year, outperforming many larger markets. This marks a significant rebound for Nigeria, which had fallen off the radar for many international investors due to currency controls. Under President Bola Tinubu’s leadership, significant economic reforms have been enacted, such as the removal of fuel subsidies that had drained foreign reserves and the liberalization of the naira. The currency lost about 70% of its value against the dollar following two devaluations, but it has since stabilized, with the naira trading closer to its fair value of 1,541 to the dollar.
While Nigeria’s bond market has attracted substantial foreign inflows, the country’s gross reserves have declined from $40 billion to $38.5 billion this year, as the central bank used reserves to pay down debt. Despite this, investors are optimistic that the naira will remain stable, provided that oil prices do not experience a significant drop. Bismarck Rewane, CEO of Financial Derivatives, noted, “They’re intervening to make sure the naira doesn’t come under a speculative attack,” though he expressed concerns that a reversal in foreign portfolio inflows could put the currency at risk.
Inflation remains a concern, standing at 23% as of February, driven by rising food prices. Experts, such as de Mones, suggest that the next phase of Nigeria’s economic recovery will depend on disinflation, which could help stabilize the cost of living. Although the naira’s low value and insulation from trade risks make Nigeria attractive to investors, the surge in interest has made this trade less “idiosyncratic,” as more investors flock to the market.
