The Nigerian stock market’s 228 per cent surge since 2023 has placed the Nigerian Exchange Limited (NGX) among the world’s strongest-performing equity markets.
However, the Alliance for Economic Research and Ethics has warned that the rally comes with significant valuation and liquidity risks.
In its assessment of the market, the Alliance noted that the NGX All-Share Index rose from about 74,800 points at the end of 2023 to 245,209 points as of August 6, 2026, while total market capitalisation increased from about ₦30 trillion to ₦158.3 trillion.
The Alliance observed that the market’s performance has been supported by a combination of economic reforms, banking recapitalisation, new corporate listings, currency movements and stronger oil prices.
It noted that the removal of fuel subsidies and the unification of foreign exchange windows, although initially painful, helped change the macroeconomic environment and improve investor confidence.
“The macroeconomic fundamentals shifted. And the stock market, which is always a forward-looking instrument, responded with enthusiasm,” the Alliance noted.
According to the Alliance, the NGX delivered a 67 per cent return in dollar terms in 2026, making it the best-performing market among 92 global indices tracked by Bloomberg.
It said Nigeria outperformed major markets, including South Korea’s KOSPI, the S&P 500 and the FTSE 100.
Banking Recapitalisation, Listings Lift Market
The Alliance identified banking recapitalisation as one of the key factors supporting the market rally.
It noted that the Central Bank of Nigeria’s (CBN) 2024 minimum capital requirement triggered fresh capital raising and consolidation in the banking industry, with banking stocks returning 68.05 per cent year-to-date in 2026.
The market has also benefited from major corporate listings, including Geregu Power, Transcorp Power, Aradel Holdings and BUA Foods.
Aradel Holdings has recorded a 194 per cent return year-to-date in 2026, according to the Alliance.
The oil and gas sector has been the strongest-performing segment of the exchange, recording a 96.35 per cent return year-to-date in 2026.
The Alliance linked the sector’s performance to higher oil prices and the listing of Aradel Holdings.
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It also noted that the gains have spread across other parts of the market, with the Premium Board returning 88.25 per cent, the Pension Index gaining 76.34 per cent and consumer goods stocks rising 8.88 per cent.
Foreign investor participation has also improved, it observed, stating that foreign inflows, which accounted for about four per cent of trading in mid-2023, increased to 16 per cent by November 2024, with further gains recorded in 2025 and 2026.
However, the Alliance said the scale of the market’s gains should be considered alongside the risks that have emerged from the rapid increase in valuations.
High Valuations, Weak Liquidity Pose Risks
One of the major concerns raised by the Alliance is the sharp rise in valuations.
It noted that the market’s price-to-earnings ratio has reached historically high levels, exceeding 100 times earnings in some sectors.
Several stocks have also recorded exceptionally large gains, including NCR Nigeria, which rose 2,123 per cent year-to-date, Eunisell Interlinked, which gained 704 per cent, and SCOA Nigeria, which increased 501 per cent.
The Alliance, however, observed that some of these gains reflected recoveries from previously depressed valuations, improvements in corporate fundamentals and speculative activity.
Another major concern is market liquidity, which, despite the NGX market capitalisation rising to ₦158.3 trillion, the Alliance noted that average daily turnover remains around ₦20 billion.
It warned that this could pose challenges for large institutional investors seeking to exit positions, particularly because significant movements in the index are concentrated in a relatively small number of large companies, including Airtel Africa, Dangote and major banks.
The Alliance also observed that the exceptional 228 per cent rise recorded between 2023 and 2026 is unlikely to be repeated because some of the factors behind the rally were one-off developments.
These included the removal of fuel subsidies, foreign exchange reforms, banking recapitalisation, major corporate listings and the initial adjustment in the naira.
“What remains are the underlying fundamentals: inflation control, fiscal discipline, current account surpluses, rising non-oil exports, and higher oil prices,” the Alliance noted.
It therefore projected that future returns could be more moderate, at about 15 to 25 per cent, rather than another exceptional gain of 228 per cent.
The Alliance said the sustainability of the rally would depend on continued fiscal discipline, further reduction in inflation, exchange rate stability and deeper liquidity in the market.
It also pointed to the possibility of Nigeria receiving an upgrade in its global market classification.
S&P Dow Jones Indices has placed Nigeria on its 2027 watchlist for a possible upgrade from “Standalone” to “Frontier” market status, which the Alliance said could attract additional passive fund flows from global index trackers.
The Alliance further observed that the market’s performance reflects the importance of policy consistency, stressing that investors tend to respond positively when they believe economic reforms will be sustained.
It quoted President Bola Tinubu as saying during a recent meeting with the NGX board as saying, “Nigeria is no longer a frontier market to be ignored; it is now a compelling destination where value is being discovered.”
However, the Alliance cautioned that the strong market performance should not be viewed only through the size of the gains.
“The question now is whether it is sustainable. The answer is: it depends,” it noted.
The Alliance added that sustaining the market’s gains will require policy consistency, stronger liquidity, exchange-rate stability and continued delivery of the government’s economic development plans.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X