Is stock market rally a brewing bubble?

In early 2026, the Nigeria has transformed into one of the world’s most aggressive financial frontiers. Following a landmark year in 2025 where the stock market returned over 51percent, the momentum has only intensified. By mid-February 2026, the All-Share Index (ASI) shattered the 190,000-point barrier, and total market capitalisation surged past the historic N125 trillion mark.

As retail participation hits new highs, the central question remains: Is this the dawn of a new, high-growth era for Nigeria’s economy, or is the market simply inflating a bubble that history suggests will inevitably burst?

Defining the bubble: Speculation versus substance

Bubble refers to a scenario in which the price of something—a single stock, a financial asset, or could be an entire sector, market, or asset class—significantly exceeds its underlying value.

Stock market bubbles involve equities—shares of corporations that experience rapid price growth, frequently out of proportion to their intrinsic value (earnings, assets, etc.). These bubbles can affect the broader stock market, exchange-traded funds (ETFs), or specific fields or market sectors.

Because speculative demand, rather than fundamental value, fuels inflated prices, the bubble gradually but inevitably bursts, and enormous sell-offs cause prices to fall precipitously, frequently rather dramatically. Indeed, in most situations, a speculative bubble is followed by a catastrophic crash in the underlying securities.

Higher prices do not automatically signal a bubble…

“We are aware of the concerns being raised about a potential speculative bubble. We continue to monitor market activity closely, and our observations so far suggest trading is occurring within the parameters of The Exchange’s rules,” said Femi Shobanjo, Chief Executive Officer of NGX Regulation Limited.

“As part of our oversight, Issuers must provide appropriate disclosures. Participation in the market has involved a wide range of participants, and markets can rise for legitimate reasons, meaning higher prices do not automatically signal a bubble.

Where misconduct or manipulation is suspected, we have zero tolerance and will not hesitate to take disciplinary action, following due process in investigation. It is important to note that an investigation into trading activity does not necessarily mean that a particular Issuer is under investigation. Rather, it reflects our scrutiny of trading practices across the market and among various participants,” Shobanjo said.

Red flags: The case of Zichis Agro-Allied

Recently, the Nigerian Exchange Limited (NGX) in a move to protect the investing public suspended all trading activities in the shares of Zichis Agro-Allied Industries Plc (Zichis) after the price surged 772.36 percent in one month.

The intervention comes amid growing concerns about a liquidity trap affecting retail investors, who have been caught up in extreme price volatility and speculative trading patterns surrounding the company’s stock.

Zichis Agro Allied Industries Plc was listed on the NGX Growth Board on January 20. The company is listed with 1.086 billion shares at N1.81 per share. Before the suspension of its trading, the stock grew by 772.36 percent in one month.

In a notice to Trading License Holders and the investing public, the NGX cited Rule 7.0 of the Rules on Suspension of Trading in Listed Securities. The exchange stated that the suspension is necessary to maintain market integrity and is in the “interest of the investing public and in accordance with SEC Rules”.

The freeze on Zichis shares remains in place until the conclusion of a formal investigation into the recent trading activities of the company.

The suspension follows a period of erratic price movements that market analysts say bore the hallmarks of a liquidity trap. Retail investors, lured by massive paper gains, found themselves entering positions in Zichis at prices that appeared disconnected from the company’s underlying fundamentals.

“Bullish markets are double-edged: they can drive growth and attract capital, yet they carry hidden risks, including overvaluation, speculation, volatility, and sudden reversals,” said Sola Oni, a Fellow of Chartered Institute of Stockbrokers (CIS), adding that, “asset bubbles rarely announce themselves”.

“They emerge when market prices drift from underlying economic value and speculation replaces fundamentals. Price discovery is the process by which markets determine fair value. It is more than technical; it is the first line of defence against financial instability.

“Weak price discovery can trigger catastrophic consequences. Safeguarding it protects investors, markets, and the economy. At its core, price discovery depends on transparency and timely access to accurate information.

Prices reflect true value only when participants have credible data and trading mirrors genuine supply and demand. Incomplete or delayed information fuels speculation, inflates valuations, and increases systemic risk. Regulators and market operators cannot afford complacency. Enforcing disclosure standards, monitoring trading patterns, and detecting manipulation are not optional. They are critical towards averting another market bubble”.

It Is not a bubble yet…

“I do not think the market is in a bubble, albeit I think it’s almost rich in valuation. The MSCI Frontier and Emerging Market Indices trade at 13.5x and 18.3x respectively, which is at premium to Nigerian market valuation,” said Abiola Rasaq, former head, investor relations and portfolio investments at United Bank for Africa Plc.

According to him, the valuation of Nigerian market is skewed by the extremes of undervalued and overvalued stocks.

“Whilst a few stocks, especially within the banking sector, are still trading below their intrinsic values, most counters already reflect their fair values, with little or no fundamental upside over the near term.

“For instance, stocks like Zenith Bank and UBA are still trading at discount to their book values despite their respective return on average equity is above their cost of equity. Conversely, some stocks are trading at peak valuation, with possible downside risk or at best limited upside going forward,” he added.

“Hence, investors may need to become selective, with focus on fundamentals in constructing or reconstructing their portfolios. That said, improving macroeconomic environment and supportive fiscal and monetary policies may warrant a re-rating of stocks as companies intrinsic valuation improves on the back of enhanced profitability and broader fundamentals,” Rasaq further said.

The ghost of 2008

According to Oni, market manipulation, intentional or not, distorts price discovery, creating a false sense of market health.

“History shows the stakes: the dot-com bubble of the late 1990s and the 2008 global financial crisis were fuelled by weak price discovery, lax regulation, and opaque reporting. The 2008 meltdown wiped out over 70 percent of market capitalisation on the Nigerian Stock Exchange (now NGX), hitting banking and energy sectors hardest. Retail and institutional investors lost billions of Naira, some permanently. The crises offer lessons that remain painfully relevant as lives were lost, prison sentences handed out, and many have yet to recover,” Oni said.

“Today, the NGX is on another bullish run, raising red flags. During my days at The Exchange, the Call-Over Trading System allowed brokers to defend pricing and chairman to correct out-of-line valuations, keeping prices closer to fundamentals. Today, technology accelerates overpricing, often disconnected from economic reality. Coupled with a banking sector flush with liquidity, the stage is set for potential market instability. Float management compounds the risk. When fewer than ten shareholders control the bulk of the most capitalised companies’ shares, it means market movements are dictated by a handful of actors, not genuine supply and demand.

“Concentrated holdings amplify volatility, distort pricing, and reduce opportunities for retail investors. The Securities and Exchange Commission (SEC) must urgently review float regulations to encourage wider share distribution, curb market concentration, and restore accurate price signals,” he added.

Five steps that define the fundamental shape of a bubble…

Displacement: When investors get fascinated with a new paradigm, such as an innovative new technology or historically low-interest rates, a displacement occurs. The fall in the federal funds rate from 6.5 percent in July 2000 to 1.2 percent in June 2003 is a classic example of displacement. The interest rate on 30-year fixed-rate mortgages decreased 2.5 percentage points during these three years to a then-historic low of 5.23 percent, laying the groundwork for the last housing boom.

Boom: Prices initially rise slowly following a displacement but then accelerate as more participants enter the market, laying the groundwork for the boom period. During this stage, the subject asset receives considerable media publicity. Fear of missing out on a once-in-a-generation chance fuels additional speculation, attracting a rising number of investors and traders.

Euphoria: Caution is thrown to the wind during this phase as asset prices surge. Valuations soar to extraordinary levels during this phase, as new valuation measurements and metrics are claimed to justify the relentless climb, and the “greater fool” theory—the belief that regardless of how prices move, there will always be a market of buyers willing to pay more—is applied universally.

Profit booking: During this period, the smart money begins selling positions and taking profits, heeding warning signs that the bubble will collapse. However, predicting the precise time a bubble would burst can be difficult because, as economist John Maynard Keynes put it, “markets can remain irrational longer than you can be solvent.”

For example, in August 2007, the French bank BNP Paribas froze withdrawals from three investment funds with significant exposure to US subprime mortgages due to an inability to evaluate their holdings.

While this revelation alarmed initially financial markets, it was quickly forgotten as global share markets achieved record highs over the next few months. In retrospect, Paribas was correct, and this very insignificant occurrence served as a precursor to the stormy days to come.

Panic: A relatively minor incident can pierce a bubble, but once pricked, the bubble cannot inflate again. During the panic stage, asset prices reverse course and fall at the same rate they had risen. Faced with margin calls and collapsing asset values, investors and speculators increasingly seek to liquidate at any price. When supply exceeds demand, asset prices fall precipitously.