A 35 per cent rise in Nigeria’s stock market last year was partly driven by more domestic investor demand, stock exchange data showed on Thursday, a sign the local confidence needed to sustain current gains is returning to equities.

Domestic investors made up 40 per cent of total trades for the first eleven months of 2012, compared with 33 per cent in the full year 2011, Nigerian Stock Exchange said.

Greater domestic investment in the stock market is seen as key to boosting its stability and insulating it from bouts of capital flight by more fickle foreign investors, analysts say.

Offshore investors accounted for the rest of the total 1.22 trillion naira trades executed in the first eleven months of last year, the exchange said. Total volumes seem likely to exceed the 1.26 trillion naira registered in 2011.

At the peak of the market in 2007, domestic investors were 85 per cent of total trades, but many pulled out during a 2008 stock market tumble and, having had their fingers burned, had been reluctant to come back.

That tumble nearly sank nine banks, until the central bank intervened to rescue them with a $4 billion capital injection.

Foreign participation was 15 per cent at the height of the bull run in 2007, but grew to 67 per cent by 2011.

Last December, Nigeria’s index rose to a 32-month high, crossing the psychological 28,000 point mark for the first time since April 2010. Nigeria was the second best performing stock market in sub-Saharan Africa after Uganda.

The index continued to rally in January this year, rising 3 per cent in its first seven days of trade. Analysts see scope for further increases in domestic participation, especially if the current bull market is sustained.

Despite the recovery, there is some way to go to return to the dizzy heights of the bubble years — the market is less than half the value it was prior to the 2008 collapse, which wiped off 60 per cent of stock values.