How Investors Can Ride the Wave of FG Reforms

Every policy decision made by the government — from tax adjustments and CBN guidance to PENCOM circulars, NAICOM rules, and import regulations — eventually affects investors’ portfolios.

After the turbulence of 2023–2024, the economy is beginning to show signs of stability. Headline inflation has eased to 18.02%, the Monetary Policy Rate (MPR) stands at 27%, and the naira has strengthened to ₦1,464 per dollar.

These shifts do more than boost market sentiment; they determine where and how investors can make money.

Recent policy developments across taxation, government borrowing, insurance, and foreign exchange are creating new opportunities and risks. Here’s how investors can position strategically.

The new Capital Gains Tax (CGT) rules now target large share sales, such as disposals above ₦150 million within 12 months. Additionally, interest on Federal Government bonds is now taxable.

This means investors making frequent or large sales may see smaller after-tax returns unless they plan their disposals strategically. Similarly, the interest rate quoted on fixed-income securities is no longer the actual take-home yield after tax deductions.

Investors should focus on the net return — the amount retained after taxes — and compare it with returns from T-Bills, commercial papers, or dividend-paying stocks.

To optimize returns, investors can stagger asset disposals across tax periods to stay below taxable thresholds and sell underperforming investments to offset gains from profitable ones. For example, a bond yielding 15% might only deliver 12–13% after taxes, while a commercial paper offering 20% could prove more rewarding if the issuer’s credit risk is acceptable. Mutual funds designed for tax efficiency and steady cash flow may also be worthwhile.

With the government running a fiscal deficit, more FGN bonds are being issued to finance spending. An increase in bond supply tends to push yields higher temporarily. Combined with moderating inflation, this presents a window for attractive nominal returns — and potential capital gains if yields decline later.

Investors can take advantage of bond and Treasury Bill auctions to lock in higher rates, balancing between short-term (one-year) and medium-term (three to seven-year) instruments. Including top-rated commercial papers with yields around 20% could further enhance portfolio performance if risk is managed prudently.

In the insurance sector, recapitalization efforts are reshaping the landscape. NAICOM’s directive compelling insurers to raise capital, merge, or exit the market may temporarily dilute earnings per share. However, over time, stronger balance sheets will enable insurers to underwrite larger policies, secure better reinsurance terms, and invest in technology — all of which can boost long-term profitability.

Investors should focus on insurers that already meet or exceed new capital thresholds or have credible recapitalization strategies. The ongoing consolidation wave may also create merger and acquisition opportunities, unlocking value through cost savings and improved pricing power.

Meanwhile, the Central Bank’s policy stance on foreign exchange and high interest rates has made naira-denominated assets more attractive. For instance, ₦5 million invested in a 14% FGN bond could grow to about ₦5.7 million — a ₦700,000 gain. By contrast, converting ₦5 million to dollars at ₦1,464/$ yields about $3,415, which would only grow to $3,655 at a 7% Eurobond rate. If the naira continues to strengthen, the dollar investment could lose relative value.

Therefore, investors may benefit from allocating more funds to naira assets such as T-Bills, government bonds, and top-rated corporate debt instruments while maintaining some dollar holdings for diversification. If inflation continues to ease, longer-term bonds could offer additional capital appreciation potential.

PENCOM’s recent guidance on pension fund asset allocation is another market driver. Allowing higher equity exposure for pension funds boosts demand for quality stocks, improving liquidity and supporting valuations of profitable, well-managed companies.

Investors should focus on large, liquid companies with strong earnings visibility, disciplined management, and sound governance — such as leading banks, telecommunications firms, and consumer goods companies with strong local sourcing strategies. Balanced and equity mutual funds can also provide exposure to these opportunities.

Tighter import controls and restricted FX access are pushing manufacturing and FMCG companies to localize raw material sourcing. Firms with strong domestic supply chains or backward integration — especially in agriculture and processing — are better protected from currency volatility and import challenges.

Consumer goods and agro-processing firms that rely less on imports are well-positioned to protect their profit margins. Investors should monitor companies investing in logistics, storage, and raw material production, as these strategies often lead to cost reductions and market share expansion.

By understanding and aligning with government policies, investors can position their portfolios for steady growth — even in a challenging macroeconomic environment.