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What a year it has already been for Nigerian stocks. Coming on the back of gains exceeding fifty per cent last year, equities are already up roughly 27.5 per cent year-to-date.

If the more optimistic forecasts prove correct, investors could be staring at another fifty per cent rally before the year ends.

Such momentum would normally be cause for celebration. Yet when markets move this quickly, the more important question becomes whether valuations still reflect economic reality.

A cross-section of earnings multiples across Nigerian equities shows that many companies now trade at double-digit price-to-earnings ratios.

Banks remain relatively cheaper, although even they have seen their valuations expand rapidly in recent weeks. Some banking stocks have witnessed their PE ratios nearly double as investor interest intensifies.

Despite these encouraging developments, there is a growing sense that valuations may now be drifting toward uncomfortable territory.

Markets rarely move upward indefinitely without occasionally overshooting their fundamental anchors.

Recent unaudited full-year results released by several companies have indeed been impressive.

Many firms reported strong earnings per share growth, with some doubling profits compared to the previous year.

Companies that previously struggled with losses have also returned to profitability and delivered respectable margins.

On the surface, these numbers appear strong enough to justify a significant re-rating across the market.

However, a closer look suggests investors may have already priced much of this recovery earlier than expected.

Share prices began rallying aggressively as far back as the third quarter of last year.

In other words, much of the earnings recovery visible today may already be reflected in current valuations. Yet despite that earlier adjustment, stock prices continue rising almost daily.

Traditionally, equity valuations are influenced either by fundamentals or by technical market momentum. In healthy markets, both forces reinforce each other. Strong earnings improve investor confidence while technical trends attract additional capital.

What we are currently witnessing in Nigeria, however, seems to be driven by additional forces that extend beyond traditional valuation logic.

The first factor is a sharp increase in demand for equities.

Over the past two years, financial literacy advocates across social media platforms have strongly encouraged retail participation in the stock market.

Their growing audiences have helped bring a new generation of investors into equities.

This surge in retail interest has significantly increased demand for stocks that previously attracted limited attention.