The local bourse has returned more than 62 per cent year-to-date (YTD), positioning Nigeria among the world’s best-performing equity markets and the second-best in dollar terms, as investors rapidly recoup losses triggered by previous currency devaluations.
Despite the sharp rally, market analysts argue that Nigerian equities remain fundamentally undervalued, even as technical indicators suggest near-term overbought conditions.
The sustained market momentum has been underpinned by improving macroeconomic reforms, stronger corporate earnings, renewed foreign investor confidence, and deep domestic institutional liquidity.
Since assuming office, President Bola Tinubu’s administration has dismantled costly fuel subsidies and liberalised the foreign exchange market, reforms that significantly improved investor sentiment after years of market distortions caused by an overvalued naira and restricted FX access.
The macro outlook has also strengthened. The International Monetary Fund projects Nigeria’s economy will expand by 4.1 per cent this year, up from 3.3 per cent when the current administration took office three years ago. In 2025, both Moody’s Ratings and Fitch Ratings upgraded Nigeria’s sovereign credit outlook, further reinforcing confidence in the country’s financial markets.
Higher global crude oil prices, triggered partly by geopolitical tensions involving Iran, have also provided fiscal relief for Nigeria, where oil exports account for nearly one-third of government revenues.
Corporate fundamentals have equally supported the market’s re-rating. Energy firms such as Aradel Holdings have benefited from stronger oil-linked revenues and improved pricing dynamics, while industrial counters, including BUA Cement and Lafarge Africa, have continued to attract significant institutional accumulation.
Foreign portfolio investment has rebounded to multi-year highs, although analysts note that the major driver of the rally remains strong domestic liquidity, particularly from Pension Fund Administrators (PFAs), which have steadily increased their exposure to equities in search of higher real returns.
Market valuations remain compelling compared with peer markets. The NGX ASI began the year trading at a trailing price-to-earnings (P/E) ratio of 6.92x, well below its five-year average of 10.65x and significantly cheaper than Egypt’s 8.47x and South Africa’s 16.28x.
This relatively low valuation profile continues to provide a margin of safety for investors entering the market, even after the recent surge in share prices.
Technically, however, the market is showing signs of overheating.
Following its breakout above the 200,000 psychological level, the market quickly advanced toward 250,000, reaching fresh record highs. During much of the first quarter, the 14-day Relative Strength Index (RSI) remained above 75, indicating overbought conditions before moderating during the ongoing consolidation phase in May.
Trading activity has also weakened notably in recent sessions. Daily volume has declined by about 34 per cent, while turnover has dropped roughly 55 per cent during the latest bearish cycle, with recent trading volumes falling to around 1.04 billion shares valued at N41.5 billion.
Analysts, however, interpret the decline in trading activity as a normal cooling phase rather than evidence of aggressive institutional selling. The market’s breadth remains firmly positive, with gainers consistently outpacing losers by more than two-to-one in several sessions.
According to market watchers, the ongoing pullback reflects profit-taking after an extended rally rather than a reversal of the broader uptrend, especially as corporate earnings continue to support higher equity valuations.
With inflation gradually moderating and the naira showing signs of stability, cost pressures on corporates are easing, allowing earnings-per-share growth to remain resilient across key sectors.
Although short-term volatility is expected after the market’s massive YTD gains, analysts maintain that the broader technical and fundamental outlook for Nigerian equities remains strongly bullish, supported by structural reforms, improving liquidity conditions, and sustained earnings growth.
