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Nigeria’s equity market gains are at risk of evaporating as a sustained sell-off over the past week intensified, due to uncertainty surrounding the proposed Capital Gains Tax hike, with the NGX down 5% in yesterday’s trading.
“Uncertainty surrounding the implementation of the Capital Gains Tax (CGT) poses risks. As institutional and foreign investors may face a significantly higher tax burden compared to retail investors, this disparity could lead to near-term sell-offs by these groups, exacerbating market instability,” analysts at Meristem Securities said in a note to clients.
Domestic equity investors have gained N28 trillion ($22.5 billion) from the local market in 2025, with the NGX-ASI returning 37.31% year-to-date to print at 141,327.30 points as at Tuesday.
The NGX All-Share Index however fell 5% on Tuesday, the steepest decline since March 19, 2010. The drop marked the seventh consecutive session of losses, the longest losing streak since Aug. 1, 2024, according to Bloomberg data.
Nigerian Markets Are Cheap if They Can Shake Off CGT Blues
The Nigerian equities market provides a compelling near-term case, despite intermittent volatility and tepid investor sentiment.
This is driven by resilient corporate earnings, sectoral reforms, and attractive valuations relative to frontier and emerging peers.
The market trades at a price to earnings (P/E) ratio of 6.24x, below its five-year average of 10.23x, suggesting underpricing in the financial services, telecoms, and real sector tickers.
“Our forward earnings estimates indicate projected average earnings per share (EPS) growth of 12–14% in 2026FY for the NGX, largely supported by robust banking earnings, insurance recapitalisation tailwinds, and improved margins across select consumer and agro-industrial tickers,” Meristem analysts said.
“Also, dividend yields remain compelling at 8–13% for top-tier banks and 4–7% for other financial services and industrial goods equities, sustaining income-focused positioning.”
The Nigerian stock index began the year in January 2025 at 102,922.15 points with market capitalization of N62.6 trillion ($40.7 billion).
This has risen to N90.83 trillion ($63.23 billion) as at November 11, indicating massive shareholder returns for investors.
However, downside risks persist, which could emanate from year-end currency pressure, sticky inflation, and policy uncertainty from the CGT imbroglio.
Scrap the Capital Gain Tax Hike
Nigeria announced last month that foreign investors will face a 30% capital gains tax on the sale of Nigerian shares starting in January from 10% currently, unless the proceeds are reinvested in other listed or unlisted domestic equities.
The measure is part of fiscal changes aimed at boosting government revenue.
“Investors are taking profit to rebalance their portfolio ahead of the implementation of the capital gains tax,” said Omobola Adu, analyst at CSL Stockbrokers Ltd., a unit of FCMB Group Plc.
For institutional investors that have held their positions for a long time, they can take profits now and pay a 10% CGT, or wait until next year and pay about 30%, he said.
Large cap names led the sell-off in Tuesday’s trading. Access Holdings lost 8.26%, BUA Cement was limit down 10%, Dangote Cement lost 10%, Guaranty Trust Holding Company (GTCO) fell 7.69%, MTN Nigeria lost 10%, Stanbic IBTC Holdings fell 9.97%, Transcorp Group lost 10% and Zenith Bank fell 9.4%.
“There are so many things that the country’s political leadership and political cycle ought to do to stimulate the market and raise its performance profile instead of this recourse to a 200% hike in CGT,” a stock market investor who has seen losses in his portfolio told MoneyCentral.
There is only one way to stop the market decline and that is to remove or suspend the CGT on listed equities, said Kato Mukuru, founding partner at Emerging & Frontier Capital LLP.
“It makes the cost of investing in Nigeria too high versus peers and even if the government insists on it, it should not be retroactive.”
Given the current market dynamics, the immediate focus for investors should be on rebalancing their portfolios toward quality, securing liquidity, and keeping some exposure to optional high-growth areas—while maintaining a tactical buffer to respond to corrections, according to Meristem Securities.
Recommendations by Meristem include buying GTCO, Zenith, UBA and Presco for aggressive growth, on any pull back, as well as MTN Nigeria and Seplat.
“As such, we recommend balancing high-dividend blue chip stocks with select growth and reform-driven small-to-mid caps, while keeping a liquidity buffer in fixed income,” they said.
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