Stocks rally as pension funds ignite liquidity tsunami

Nigeria’s stock market surged on Tuesday after a quiet but powerful rule change released fresh money from the country’s pension funds into equities.

Shares listed on the Nigerian Exchange Limited added N1.8 trillion in value in a single session, one of the strongest daily gains in recent months, after the National Pension Commission (PenCom) raised the limit on how much pension fund managers are allowed to invest in stocks.

The decision matters because pension funds control a large pool of long-term savings. When rules restrict where that money can go, markets can stagnate. When those limits are eased, prices can move quickly.

PenCom’s revised investment guidelines effectively widened the door for pension funds to buy more shares, injecting fresh liquidity into a market that rallied every year since 2023.

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“The new directive was a shot of adrenaline for the Nigerian Exchange Limited (NGX),” said Abdulrauf Bello, a portfolio manager at Lagos-based fund manager, Cowrywise. “When the PFAs allocate more of their asset under management growth to equities, it will drive transaction values and prices up.”

Pension fund administrators (PFAs), who manage workers’ retirement savings, moved swiftly to rebalance their portfolios in search of better returns. With inflation still high, many funds are under pressure to protect the real value of pensions, making equities more attractive despite their risks.

That shift in demand was most visible in blue-chip stocks — large, established companies in banking and industry that are seen as safer and easier for big investors to trade in size. Prices of these stocks climbed as buyers outnumbered sellers.

By the end of trading, the benchmark index rose 1.64 percent, pushing total market capitalisation to N113.496 trillion.

Market participants say the move corrects a long-standing constraint that limited the growth of Nigeria’s capital market.

“It is a very welcome development that we feel is long overdue,” said Charles Egbunonwo, managing director of The Brook Securities Limited.

Egbunonwo sees this development from the pension industry regulator as a positive action that will boost equities market performance and liquidity.

Stocks like Aradel, MTNN, Lafarge Africa, BUA Cement, Eunisell, NGX Group, NAHCO, Presco, PZ, Cadbury, Vitafoam, and UACN were already turbo-charged by the new liquidity.

Aradel gained N66 to close at N991. BUA Cement gained N9 to close at N192. Cadbury gained N3 to close at N67. Eunisell rose to N143.95, adding N9.1. Dangote Sugar increased to N71.10, adding N2.75. IMG increased to N38.10, adding N3.45. NGX Group advanced to N116, adding N10.3. Presco reached N1,700, adding N10. Vitafoam moved up to N105.80, up by N9.6. Lafarge Africa increased to N186.80, adding N16.9.

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For years, the Nigerian pension industry—now a N27.45 trillion giant—was known to be a “safe haven addict”, with over 65 percent of its assets locked away in the predictable embrace of FGN bonds and Treasury Bills. But the PenCom has raised the ceilings for “Variable Income Instruments” (equities) across the multi-fund structure.

PenCom’s policy shift appears to be a direct response to the persistent inflationary environment, which has long eroded the real returns of the traditional, fixed-income-heavy portfolios favoured by Nigerian PFAs.

Tosin Olaseinde, CEO at Money Africa recommends that pensioners under 40 or even 45 can ask their fund manager to move them to RSA Fund 1. “The risk is high but returns are sweet.”

The PenCom circular provides the following revised caps for ordinary shares: Fund I (Aggressive) – increased ordinary shares in RSA fund to 35 percent of portfolio value from 30 percent; Fund II (Balanced) – raised to 33 percent up from the previous 25 percent thresholds; Fund III (Conservative) – now allows up to 15 percent exposure, providing a buffer for those nearing retirement; while the ordinary shares in the RSA Funds VI-Active has been raised to 33 percent, from 25 percent.

“We apply a scenario approach to investigate the potential flows that are likely to trickle down to the equities market. The base case suggests that N989.5 billion could potentially flow into the equities market on account of the new rule. This value compares to a best-case scenario of N1.6 trillion and a worst-case scenario of N593.7 billion,” Tomiwa Adeniji, investment research analyst at CardinalStone, said in a recent report.

A portfolio manager at a Tier-1 PFA sees even a modest 5 percent shift from fixed income to equities across the industry triggering an inflow of over N210 billion into the stock market.

Also in their February 10 note, Lagos-based CardinalStone research analysts said “the decision appears to be a good catalyst for an equities market that is already on a bright path.”

They noted that “the decision also combines with valuation attractiveness, growth expectations, a stable FX market, and moderating inflation to improve the case for Nigerian equities in 2026.”

“PFAs are also likely to leverage the rule to properly optimise their positions in fundamentally sound tickers, with their sell orders previously hindering the take-off of these stocks now expected to give way to buy orders and sustain the bullish momentum,” CardinalStone research analysts further said.

Changes in investment limits on ordinary shares

The new circular, however, provides the following revised caps for ordinary shares:

Fund I (Aggressive)

For Fund 1 (designed for active contributors under 50 years old with a high-risk appetite), It increased the ordinary shares in the RSA fund to 35 percent of portfolio value from 30 percent.

Examples of this fund includes; Stanbic IBC Pension Managers Limited, Nigeria Police Force Pensions Limited, Veritas Glanvills Pensions Limited, CardinalStone Pensions Limited, and others.

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Fund II (Balanced)

Raised to 33 percent, up from the previous 25 percent thresholds. Sector data reveals that Fund II was closing in strongly on the old 25 percent limit, as its equity allocation as of full year 2025 was already 22.4 percent (N2.58 trillion).

Examples of this fund include: Tangerine APT Pensions Limited, CrusaderSterling Pensions Limited, Pensions Alliance Limited.

Fund III (Conservative):

The regulator now allows up to 15 percent exposure from 10 percent, providing a buffer for those nearing retirement. Data showed that Fund III was already in breach, at 10. 4 percent.

RSA Fund VI-Active:

Equity allocation was moved to 33 percent from 25 percent

Implications for the NGX

Adeniji said that the decision appears to be a good catalyst for an equities market that is already on a bright path.

“PFAs are also likely to leverage the rule to properly optimise their positions in fundamentally sound tickers, with their sell orders previously hindering the take-off of these stocks now expected to give way to buy orders and sustain the bullish momentum,” he said.

Adeniji said that decision also combines with valuation attractiveness, growth expectations, a stable FX market, and moderating inflation to improve the case for Nigerian equities in 2026.

“With the threshold band expanded to 35 percent, we can expect to see more allocation of new inflows to equities (my estimate is N1.5 trillion or 13 percent of what the entire market in transaction value in 2025). When that happens, it means there will be more liquidity in the market, and the momentum we currently see in the stock market may sustain,” Bello of Cowrywise said.