Nigeria’s stocks rose for a third day to their highest level in almost nine months as locals pounced following the end of the naira’s peg on June 20. Foreign investors may be waiting until the currency weakens further.
The Nigerian Stock Exchange All Share index jumped 3.1 percent to 31,071.25 in Lagos, the commercial capital, its highest close since Sept. 30. The benchmark has climbed 8 percent in the past three days, the most among 94 major equity indexes tracked by Bloomberg. The naira, which fell 30 percent on the first day it floated freely, dropped 0.5 percent to 284 against the greenback by 2:22 p.m.
“Volumes in the equity market have gone from about $8 million a day last week to more than $20 million,” Chris Becker, an analyst at Investec, said by phone from Johannesburg. “It’s a big increase, but it’s not all new foreign money coming in. A lot of the rally is down to local money being switched from the bond market to stocks.”
Central Bank of Nigeria Governor Godwin Emefiele announced on June 15 that the naira would be able to trade without restrictions from this week, removing a 16-month peg of 197-199 per dollar. The move came after capital controls needed to defend the measure caused foreign investors to flee and sent the economy, which contracted in the first quarter for the first time since 2004, to the brink of recession.
Yields on local-currency government bonds have risen 40 basis points since the day of Emefiele’s announcement to 14.53 percent, the highest level after Egypt among 34 emerging markets tracked by Bloomberg.
There are still few transactions in the foreign-exchange market beyond the dollar sales by the central bank, according to Becker. The monetary authority sold $4 billion in the spot and forward markets to clear a backlog of demand for hard currency on June 20 and about $100 million the following day.
“So far, the new FX market has disappointed because there’s still very little liquidity, indicating that the exchange rate is not at a market-clearing level yet,” Becker said. “Other than the CBN, not many others are supplying dollars at these levels, suggesting the currency needs to weaken further. We think it’ll fall to around 300 over the next 12 months, but initially probably needs to weaken more than that.”
GlaxoSmithKline Consumer Nigeria Plc and Champion Breweries Plc led Thursday’s gains, advancing 10 percent. The banking index rose 2.3 percent for its best close since Oct. 23.
“Foreigners aren’t really coming back yet” into the foreign exchange market, Mickael Avou Ahonzo, head of currency trading at Ecobank Transnational Inc., said by phone from Paris. “They want to take positions. It’s less about the level of the naira than its stability and the liquidity. There’s enough liquidity for small trades, but not really for big transactions.”