Nigeria’s stock market is sending two seemingly contradictory signals to investors: equities are historically overbought, yet valuations still suggest the rally may have further room to run.
That tension now sits at the centre of investor debate as the Nigerian Exchange Limited extends one of the strongest bull runs in its modern history.
The benchmark NGX All-Share Index has surged more than 60 per cent year-to-date, crossing the psychologically important 200,000-point threshold in March before climbing toward the 250,000 range. In dollar terms, the market has rapidly recovered value erased during successive naira devaluations, placing Nigerian equities among the world’s top-performing asset classes this year.
Ordinarily, such a rally would trigger concerns about unsustainable pricing and speculative excess. Technical indicators already suggest parts of the market are overheated. The Relative Strength Index, a widely watched momentum gauge, spent much of the first quarter above 75, well within overbought territory.
Yet portfolio managers argue the rally differs from previous speculative surges because valuations remain comparatively low despite the sharp appreciation in prices.
At the beginning of the year, the NGX traded at a trailing price-to-earnings ratio of 6.92 times, significantly below both its five-year average of 10.65 times and peer African markets such as Egypt and South Africa. Even after the rally, analysts say parts of the market remain fundamentally undervalued relative to earnings potential, particularly in banking, cement and energy stocks.
That dynamic is creating an unusual market structure where equities appear technically stretched in the short term but fundamentally cheap over the medium term.
The significance for investors is that Nigeria’s rally is increasingly being interpreted not as a temporary momentum trade, but as a structural re-rating of domestic assets following major macroeconomic policy shifts under President Bola Tinubu’s administration.
The removal of fuel subsidies and foreign exchange controls fundamentally altered investor perception of Nigeria’s policy direction after years of distortions that discouraged foreign capital and compressed corporate valuations.
Credit rating upgrades from Moody’s and Fitch in 2025 reinforced that shift, while easing currency volatility has improved visibility for foreign portfolio investors previously locked out by liquidity concerns in the foreign exchange market.
Higher crude oil prices following tensions linked to the Iran conflict have also strengthened Nigeria’s fiscal outlook, improving government revenue expectations in an economy still heavily dependent on oil exports.
But the most important driver of the rally may not be foreign money.
Domestic institutional investors, particularly Pension Fund Administrators, have aggressively increased equity exposure, injecting deep liquidity into the market and helping sustain buying momentum even during periods of profit-taking.
That shift matters because it suggests the market is being increasingly supported by long-duration domestic capital rather than purely speculative offshore flows vulnerable to sudden exits.
Stocks such as Aradel Holdings Plc, BUA Cement Plc and Lafarge Africa Plc have attracted strong institutional accumulation as investors reposition toward companies expected to benefit from infrastructure spending, energy reforms and improving macroeconomic stability.
Recent trading patterns, however, suggest the market may be entering a consolidation phase.
Daily trading volumes and turnover have weakened sharply in recent sessions even as the index remains near record highs. Analysts interpret this divergence cautiously. In some cases, falling volume during pullbacks suggests selling pressure is fading rather than accelerating. But it may also indicate investors are becoming more selective after months of broad-based buying.
The next phase of the rally will likely depend less on liquidity and more on earnings delivery.
With inflation gradually moderating and the naira showing relative stability, investors are now watching whether corporate earnings growth can justify current momentum. If earnings remain resilient, analysts believe Nigerian equities could continue to rerate toward historical valuation averages.
If not, the market may face its first meaningful correction after an extraordinary run.