Market News

by Collins Nweze 

Investors who relied on dollar funds to hedge against inflation and naira-induced losses missed their targets this year. The weaker naira, which for years had incentivized a rush into dollar funds, appreciated instead. Many investors who entered the dollar fund market at N1,655/$1 at the beginning of the year are now losing at least N165/$1 due to the exchange-rate differential, with the naira trading at N1,490/$1. Meanwhile, high inflation—a key driver for dollar fund demand—also eased sharply, falling from 34.60 per cent in November 2024 to 14.50 per cent in November 2025. The biggest beneficiaries have been naira-denominated assets, strengthened by a firmer local currency and lower inflation. As a result, savvy investors are now exiting dollar funds in favour of naira assets to maximize yields and protect their wealth from value erosion, writes Assistant Editor COLLINS NWEZE

Investors are always in search of higher-yielding assets capable of delivering their target returns. Yet, such assets are rarely free of risk and uncertainty. Stanley Ben-Okoafor, a Nigerian investor based in the Netherlands, understood this reality well. For years, he adhered strictly to a diversified investment strategy, mindful of the age-old principle—often the first lesson taught to novice investors—that one should never put all their eggs in one basket.

However, in January this year, the lure of higher yields led him to abandon that long-standing discipline. Seeking better returns, Ben-Okoafor instructed his banks to liquidate his naira-denominated investments, including savings and fixed deposits, and convert the proceeds into dollars. His equity holdings were also sold, with the proceeds similarly converted. In total, he committed $100,000 to dollar investments at an exchange rate of N1,655 to the dollar.

While the investment yielded a return of 7.5 per cent in dollar terms, much of that gain was eroded by movements in the foreign-exchange market, particularly the strengthening of the naira. “The naira’s appreciation to N1,490/$1 at my exit point meant I lost N165 on every dollar,” he explained. “That significantly reduced my take-home return from the investment.”

At present, the naira trades at around N1,490/$1 in the parallel market and N1,460/$1 at the official window, creating a premium of N30/$1. Many dollar investors, including Ben-Okoafor, typically exit at the parallel market rate. The currency’s recent appreciation has been attributed to increased foreign-exchange inflows and improved transparency in the FX market.

Ben-Okoafor’s experience mirrors that of millions of Nigerians who shifted funds from naira assets into dollar-denominated investments this year, only to see the value of their portfolios eroded. The sharp naira depreciation that previously justified such strategies failed to materialise. Instead, the currency posted notable gains at both the official and parallel markets, alongside a marked slowdown in inflation. Predictably, this triggered a wave of portfolio realignments in Nigeria’s investment landscape. Savvy investors began divesting from dollar funds—which had once dominated as high-yield instruments—and reallocating capital into naira assets, now emerging as the preferred choice.

Michael Steven-Aku, one of the investors who recently switched from dollar funds back to naira-denominated assets, offered insights into the forces reshaping the market. “After eight consecutive months decline in inflation rate to 14.45 per cent in November 2025, according to the latest Consumer Price Index report from the National Bureau of Statistics (NBS), the naira has stabilised and the appeal of holding dollar as a hedge by investors also reduced. With naira trading at N1,490/$1, investors are moving away from dollar hoarding and back into naira-denominated investments to avoid currency fluctuation risks,” he explained.

Likewise, Obiageli Maduka, a Lagos-based entrepreneur and avid investor in dollar funds, said she recently had a rethink. According to her, dollar-denominated assets no longer provide the level of protection they once did against inflation-induced capital erosion. “I lost interest in investing in dollar funds. In January 2025, I invested $50,000 in dollar funds at the exchange rate of N1,655/$. Today, the naira exchanges at N1,490/$ and large part of the 7.5 per cent yield was wiped out by negative N165/$1 exchange rate differential,” she disclosed.

Maduka explained that her friends that made similar investments in naira-based Money Market Fund had a better deal. “A close friend of mine invested N60 million in Money Market Fund and has constantly earned above 19 per cent monthly yield or over N1 million monthly returns on investment,” she said.

Maurice Stevenson, an Abuja-based investment banker, explained that the investment climate in 2025 was extremely difficult for dollar fund investors because of significant naira rebound and drop in inflation figures. “These two developments meant that unlike in the previous years when dollar fund investors earned interest on their funds, and still earned extra from positive exchange rate differential due to weaker naira, they had to contend with a stronger naira and negative exchange rate differential at the exit point this year,” he said.

In practical terms, the inflation rate dropping from 34.60 per cent in November 2024 to 14.50 per cent in November 2025 means that the prices of goods and services dropped by 19.5 per cent between November 2024 and November 2025. That means a bag of onions that cost N100,000 in November 2022 dropped by N20,100 in November 2025 to cost N79,900.

Findings showed that when the supply of goods and services outpaces demand, buyers become unwilling to pay higher prices, resulting in a decline in prices. Similarly, a contraction in money supply, especially when not matched by an increase in output or productivity in the economy, can also exert downward pressure on prices. As inflation eases, millions of Nigerians who invested in high-yield interest funds have seen their wealth grow in real terms. With their funds gradually gaining value, these investors are better positioned to meet their daily financial obligations.

Investors show interest in equities

High returns in equities also reignited investor interest in naira-denominated assets. Despite a tight monetary policy environment, Nigeria’s equity market delivered substantial wealth to investors this year. From index heavyweights and old-economy stocks to turnaround plays and previously overlooked names, the market offered bountiful yields across a broad spectrum of listed companies.

By December 22, 2025, no fewer than 40 companies listed on the Nigerian Exchange Limited (NGX) had returned over 100 per cent to investors—an outcome that sharply contrasted with the cautious sentiment that prevailed at the start of the year. Although the NGX All-Share Index (ASI) recorded a strong year-to-date gain of 48.12 per cent, the scale of outperformance by select stocks underscored how exceptional equity returns were in 2025.

Some individual performances were particularly striking. NCR Nigeria posted a staggering 1,354 per cent rally, redefining what was possible on the local bourse within a single calendar year. Beta Glass advanced by 470.11 per cent, Mutual Benefits Assurance rose 408.20 per cent, Champion Breweries gained 339.63 per cent, while Eunisell Interlinked climbed 315.15 per cent, among others.

Several investors who participated in the rally shared their experiences. Kingsley Nwadike, an entrepreneur, said he moved funds from his savings deposit account into the equities market—a decision that paid off handsomely. “I had kept my funds in a savings account for decades because of the ease of access,” he said. “But the interest earned could not even beat inflation. I decided to move my funds into equities, where I earned a 28 per cent year-to-date return.”

Another investor, Akpan Okon, said he is better off than those who left their funds in savings accounts and bore the brunt of inflation. “Even now, there are pockets of value in the equity market worth exploiting,” he noted. “Several listed companies have long-term internal returns on equity that point to positive total returns over time.”

Commenting on the broader market dynamics, Managing Director of Afrinvest West Africa Limited, Ike Chioke, said improved currency stability, stronger-than-expected corporate earnings and consistent dividend payments encouraged investors to rotate back into equities, particularly stocks trading below their intrinsic value. He added that overall market participation strengthened steadily throughout the year, with sustained bullish sentiment occasionally interrupted by profit-taking. According to him, reform-driven developments, policy implementation and rising investor awareness collectively drove higher trading volumes across the market.

Understanding dollar investments

Investor interest in dollar funds surged after the Central Bank of Nigeria (CBN) liberalised dollar investments through a new foreign-exchange policy that allows investors to transfer dollar cash deposits from one domiciliary account to another. Under the policy, daily transfers are capped at $10,000. Previously, dollar-denominated investments were largely restricted to individuals with offshore dollar inflows, effectively limiting participation to a narrow segment of investors. The policy shift broadened access, enabling more Nigerians to invest in dollar assets using funds held in their domiciliary accounts.

Several asset managers and investment banks now facilitate dollar funds and fixed-income investments. Notable among them are Chapel Hill Denham Advisory Limited, FCMB Capital Markets Limited, Stanbic IBTC Asset Management Limited, Vetiva Advisory Services Limited, Coronation Merchant Bank Limited, Meristem Capital Limited and Afrinvest Asset Management Limited.

Afrinvest Asset Management Limited, for instance, introduced an open-ended mutual dollar fund offering returns of about 10 per cent per annum. The fund delivers significantly higher returns compared to funds kept in domiciliary accounts in Nigeria or current accounts in Europe and the United States. The Afrinvest Dollar Fund was designed to support income generation, capital preservation and portfolio diversification over the short to medium term. It targets superior returns and pays dividends twice yearly. Investors can participate with a minimum investment of $1,000.

 Similarly, Stanbic IBTC Asset Management launched the Stanbic IBTC Dollar Fund to provide currency diversification, income generation and stable growth in U.S. dollars. In a note to investors, the firm said the fund will allocate a minimum of 70 per cent of its portfolio to high-quality Eurobonds, up to 25 per cent to short-term U.S. dollar deposits, and a maximum of 10 per cent to U.S. dollar-denominated equities approved and registered by the Securities and Exchange Commission of Nigeria. The fund manager advised that investors must transfer a minimum of $1,000 for the initial investment and at least $500 for subsequent top-ups, either through the bank’s mobile application or by visiting a bank branch to initiate the transfer. “When you fund your investment, you can earn extra money by referring friends and family. You can also add to your investment over time and withdraw at your convenience. If you have questions or need assistance, please reach out. We are here to help you get started,” the company said.

The fund also promised competitive dollar returns, controlled risk exposure and seamless access to funds through its Super Apps. It reiterated that investors could hedge against inflation by earning in dollars, noting that the new foreign-exchange guidelines permit the transfer of dollar cash deposits between domiciliary accounts, subject to a daily limit of $10,000.

An investment analyst and Chief Executive Officer of Nairametrics Financial Advocates Limited, Ugochukwu Obi-Chukwu, explained that dollarisation largely stems from fear that inflation will continue to erode the value of the naira. According to him, many investors overlook the fact that sustained demand for dollars contributes to exchange-rate depreciation. “There is a sense of urgency that even the government shares. The government itself dollarises. When public assets are privatised, they are sold in dollars. At the seaports, fees are also denominated or converted in dollars. Government machinery is essentially dollarised, and other segments of the economy simply follow,” he said.

Meanwhile, Chief Business Officer of Countryside Investment Limited, Michael Akpan, highlighted the risks associated with keeping idle funds. While encouraging Nigerians to invest rather than leave money dormant, Akpan noted that one of the harsh realities of inflation spikes is the steady erosion of purchasing power.

“Even if interest or the return you are getting on your investment is below inflation rate, doing nothing will make you worse off. By investing in equities, money market, treasury bills or dollar funds, you are likely to reduce the impact of inflation on your funds,” he stated.

Akpan explained that even where inflation is running far ahead of returns, that should not deter investors’ commitment. “Assuming you earn between 10 to 20 per cent returns, it means you have been able to cut down your actual cost of living by at least 10 per cent. In real terms, your exposure to inflation is moderated by the extra income from investing, which is better than just taking inflation 100 per cent,” he said.

He added, “The options available are equity investment, treasury bills/commercial papers, federal government bonds/corporate bonds, federal government savings bond and dollar funds. Equity investment is the buying and selling of stocks listed on the Nigerian Exchange and NASD OTC market. Treasury bills are issued by the CBN on behalf of the federal government; commercial papers are issued by corporate bodies to meet short term obligations. The federal government of Nigeria bonds/corporate bonds are issued by the federal government and corporate bodies, respectively, to meet capital projects.”

Views from other stakeholders

CBN Governor, Olayemi Cardoso, said that despite persistent geopolitical tensions, supply-chain realignments, rising protectionism and other global headwinds, a softer U.S. dollar and easing global inflation present clear advantages for Nigeria and other emerging markets. According to him, many African currencies that were previously under intense pressure are now beginning to stabilise. He noted that with improved economic management and the implementation of domestic reforms, Sub-Saharan Africa is projected to record growth of 3.8 per cent in 2025 and 4.4 per cent in 2026, according to World Bank estimates. “Nigeria, Ethiopia and Côte d’Ivoire are leading this continental recovery, demonstrating the impact of decisive reforms, credible institutions and focused policy direction,” Cardoso said. “This type of resilience is never automatic; it is the outcome of difficult, disciplined choices—choices we too have had to make.”

The CBN governor added that the significant and steady decline in inflation is helping to restore real purchasing power for households and businesses. He said the trend also underscores disciplined policy execution and signals Nigeria’s return to orthodox monetary policy management. “We continue with determination to bring inflation down further. The current double-digit rate cannot be acceptable. Price stability is the foundation of sustainable growth. Our transition to an inflation targeting framework is gaining traction. We have improved data analytics, strengthened communication, and ended monetary financing of fiscal deficits. These actions have strengthened monetary policy transmission and anchored expectations,” he said. Cardoso also emphasised that a functional, transparent and liquid fixed-income market is critical for effective monetary policy transmission and the mobilisation of long-term domestic savings.

Echoing this view, a member of the CBN-led Monetary Policy Committee, Aloysius Ordu, said the naira has demonstrated relative stability, largely due to the CBN’s implementation of market-reflective exchange-rate policies. “These measures have helped narrow the gap between official and parallel market rates, enhanced investor confidence and promoted transparency in the foreign-exchange market,” he said. “The CBN’s continued efforts to strengthen market liquidity and maintain exchange-rate stability are essential to sustaining external sector resilience.”

President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, attributed recent naira stability to a surge in foreign portfolio investment (FPI) inflows and the rise in external reserves to about $45.23 billion as of late December 2025. He further noted that the deployment of the Electronic Foreign Exchange Management System (EFEMS), powered by Bloomberg BMatch, has transformed FX trading by enforcing mandatory order submission, enabling real-time regulatory visibility and improving price discovery.

Meanwhile, the International Monetary Fund (IMF) cautioned that dollarisation of the economy could be difficult to reverse. As a partially dollarised economy, Nigeria operates with a dollar bias in international trade, financial invoicing and, more recently, as a store of value. In its report titled Digital Money and Central Bank Balance Sheets, the IMF warned that once an economy becomes accustomed to a bi-monetary system, reversal is challenging—even after the original triggers, such as high inflation and exchange-rate volatility, have been addressed. “The optimal choice between domestic currency and the dollar depends on the monetary framework and the relative benefits each offers as they coexist,” the IMF noted.

The IMF further explained that in highly dollarised economies like Nigeria, exchange rates are extensively used for price indexation, resulting in high real dollarisation and near-complete pass-through from currency depreciation to inflation. For many stakeholders, this underscores the need to assess investment decisions not only in terms of nominal returns, but also with regard to capital safety and long-term wealth sustainability.