This Chart Is A Reminder Of What Happened To The Nigerian Stock market In 2009

The Nigerian All Share Index has recently trended upwards helping some investors smile to the bank and regulators beating their chest. It has returned nearly 35% year to date meaning if you invested in all the shares on the exchange as at January 2013 your portfolio will be up by about 35% today. But this is not an unfamiliar territory as the chart above indicates.

Just look at the period between 2006 and 2008. What you see is a stock market on a rise as investors continued to pour in money after stocks with very poor fundamentals. By February 2008 the market was at its peak only for it to start tanking as the bubble got over inflated and faced an imminent bust. It lost more than half its value by mid 2009.  Whilst Im not hoping such a disastrous event will occur again there are signs that we might be approaching such ‘bublish’ sentiments again. Share prices of companies that have little or nothing to show in terms of historical performance in their results has been on the rise relentless.

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Investors expectedly has seen this trend and have begun pouring in money to push prices further north. Whilst some if not most will make money from this trend, most also end up loosing by the time the bubble hit its highs and bust. A market that rises on the back of generally poor results, weak economic growth and low per capital income is not one that can stand the test of time. The chart above is a reminder that bubble does burst and equity markets are not all that efficient.

Chart: From Bloomberg