Nigeria’s stocks were the world’s best performers on Thursday, extending gains from the previous day after Africa’s biggest economy threw in the towel on a currency peg that has sent foreign investors fleeing.
The Nigerian Stock Exchange All Share Index rose 2.1 percent to 28,489.87 by the close in Lagos, the commercial capital, the most among 94 global indexes tracked by Bloomberg. They rose 3.2 percent on Wednesday after the central bank said it would let the naira weaken and allow it’s value to be determined by the market from June 20.
The Abuja-based regulator has fixed the currency at 197-199 per dollar since March 2015, even as other oil exporters from Colombia to Kazakhstan let theirs fall amid the rout in crude prices from 2014. Foreign investors, put off by the capital controls needed to defend the peg, sold naira bonds and stocks. While they haven’t yet returned, locals have been buying equities expecting that they will soon, according to Tajudeen Ibrahim, head of equity research at Chapel Hill Denham Securities Ltd.
“Local investors are positive about the central bank’s move, believing it will boost dollar liquidity,” Ibrahim said by phone from Lagos. “They believe that at some point foreign investors will come back to the market. It’s unlikely to happen very soon. It may take a couple of weeks before they’re comfortable with the new foreign-exchange system.”
More than two stocks gained for every one that dropped. Champion Breweries Plc gained the most, rising 9.9 percent to 3.34 naira. The banking index climbed 3.1 percent, bringing its two-day gain to 7.2 percent.
Three-month non-deliverable naira forwards surged 1.9 percent to a record 310 per dollar on Wednesday, suggesting traders expect the Nigerian currency to trade around that level in the market. The contracts rose further to 315 on Wednesday. Nigeria’s 2023 dollar bonds slipped, sending the yield up 15 basis points to 7.21 percent, following the biggest gain since 2014 the previous day.
The Central Bank of Nigeria will select a group of around 10 primary dealers through which the naira will be traded. There will only be one official exchange rate and the bank will intervene in the market to buy or sell foreign exchange “as the need arises,” Governor Godwin Emefiele told reporters in Abuja, the capital, Wednesday.