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A slightly more flexible foreign exchange (FX) market, combined with the proposed record budget spending for 2017 by the Federal Government is helping to bid up Nigerian assets as investors bet the worst may be over for Africa’s largest economy.
Nigeria has seen some success in attracting inflows of dollars through the new investor and export (I & E) window introduced by the Central Bank of Nigeria (CBN).
About $2.518 billion has flowed through the FX window from inception through June 09 at an average rate of N380 per dollar, according to data from Investment One Research.
The CBN intervention in that segment of the market is now at less than 30 percent, Godwin Emefiele, the CBN Governor said last month, after a monetary policy meeting.
Real GDP growth remains in negative but rising, as the growth trajectory is positive with most activities reporting expansion, according to Bismarck Rewane, CEO of economic consulting firm, Financial Derivatives.
“There is improved corporate earnings due to the improved macro economy. Policy is right and getting better and the outcome is positive but slow,” Rewane said in a recent presentation.
“The good news however, is that the economic momentum is enhanced by the repairs to the Forcados and near completion of Escravos pipelines. Combined, these two could add approximately 400,000 barrels of oil exports per day.”
The World Bank forecasts a modest return to growth for Nigeria of 0.8 percent in 2017 after a 1.5 percent contraction in output last year.
Nigerian stocks are up 28 percent year to date (ytd) with average daily trading value up 4.89 percent to N3.34 billion, while the S&P Nigeria bond index has gained 6.89 percent.
The country completed the sale of $300 million in Diaspora bonds on Tuesday, at a coupon rate of 5.625 percent, indicating healthy appetite for the paper.
Year on Year inflation declined for the fourth consecutive month to 16.24 percent in May 2017. Bullish trend persists for naira assets, as the market capitalisation of listed stocks has now risen to N11.89 trillion and the total number of Rights Issues in 2017 is now in excess of cumulative five year issues.
UAC Nigeria plc has launched a N5bn rights offer , UBA sold up to $500m in senior unsecured medium term debt notes, Zenith Bank successfully issued a $500million Eurobond and Lafarge Nigeria Plc also launched a rights offer of N140bn, while Forte Oil intends to raise N20 billion.
The Investor and Exporter foreign exchange window closed trading at N369.31 per dollar on Tuesday, with turnover at $111 million, data from the FMDQ show.
Foreign Portfolio Inflows to the Nigerian Stock Exchange turned positive on a net basis in April, when N14.54 billion of inflows from foreign investors came in, compared to N7.91 billion of outflows, according to data from the Nigerian Stock Exchange (NSE).
Offshore holdings of Nigeria’s equities rose 15 percent in May, to around $5 billion, while they fell 4.4 percent to $5.5 billion for fixed income assets, according to Standard Bank Group Ltd.
“What has become evident in recent weeks, is that naira bonds yielding 18% and equities are cheap enough that investors are prepared to buy the naira, even with just a small discount to the fair value estimate,” Charles Robertson, global Chief Economist at Renaissance Capital, said in a note to investors. Risk from political uncertainty and falling oil prices remain for the country though.
Elevated yields will test the ability of the government to fund its ambitious record N7.4 trillion budget, of which nearly half of the amount is expected to be borrowed. The CBN said last week, it would issue N1.24 trillion naira worth of the treasury notes in the third quarter, starting from June 15 to August 31. The CBN’s gross foreign-exchange reserves have fallen by about $700 million since early May, 2017 which will put pressure on the ability of the bank to defend the local currency.
Oil prices are also trading below $50 a barrel, a negative for the currency, as Nigeria gets most of its dollar earnings from the sale of crude oil.
PATRICK ATUANYA
